How investors can protect against tariff turbulence… and even profit from the storm

Market Jitters Mount Ahead of ISA Deadline Amid Tariff Concerns

Investor sentiment is cautious, rather than optimistic, as the ISA deadline approaches tomorrow, following the unveiling of US President Donald Trump’s tariff proposals earlier this week.

This “Make America Wealthy Again” initiative has diminished the value of numerous existing stocks and shares ISAs.

Some investors, troubled by the market turbulence, are contemplating whether to fully utilize this tax year’s ISA allowance in the final hours.

Conversely, others intend to initiate their 2025-26 ISAs in the coming days, opting for the security of cash holdings.

However, is prioritizing cash the most prudent strategy, considering the potential for tariffs to trigger ‘significant global economic repercussions,’ as cautioned by Jim Reid, chief strategist at Deutsche Bank? Or should investors disregard short-term portfolio anxieties?

Jacob Falkencrone of Saxo Bank suggests investors should adopt a composed approach, rather than succumb to panic. He argues, ‘With careful planning and a clear perspective, investors can navigate market fluctuations and potentially identify new opportunities.’

Maintaining a composed demeanor may prove challenging, particularly for novice retail investors who have limited experience with investment losses. Even seasoned financial professionals are expressing unease.

On Wall Street, the prevailing sentiment has shifted from prioritizing gains to fearing further market instability.

Liquidating stock market holdings might seem like a straightforward solution. However, such actions could negatively impact long-term financial goals.

Here is guidance on how to manage potential losses in the current climate and enhance the prospects of future gains.

Investment Strategy: Navigating Market Volatility

Further market fluctuations are anticipated. This should not be interpreted as a prompt to liquidate assets, but rather as an opportunity to re-evaluate portfolio diversification.

Over-reliance on a single sector introduces vulnerability, although divesting from that sector entirely could be disadvantageous in the long run.

Juliet Schooling Latter, research director of Fund Calibre, observes: ‘Upon witnessing portfolio losses, many clients are inclined to sell, with the intention of re-entering the market when share prices rebound.

‘It is often difficult to convince them that they are solidifying their losses and will encounter challenges in accurately timing their market re-entry.’

Jason Hollands of Bestinvest points out that the full consequences of these tariff measures will not be immediately apparent.

Corporations might increase consumer prices to protect profit margins, while others could decide to increase domestic production within the US, or explore alternative export markets. Therefore, it is advisable to ‘remain patient, avoid impulsive reactions, and allow the market environment to stabilize’.

When reviewing your portfolio and encountering underperforming funds or stocks, conventional investment analysis might not provide definitive guidance on whether to sell.

The principles advocated by renowned investor Warren Buffett may offer more valuable insights, however.

Buffett suggests that selling a stock is warranted if the underlying business fundamentals have undergone significant change or if a more compelling investment opportunity arises in the form of a lower-priced stock.

Buffett sometimes opts to decrease his holdings incrementally, rather than completely divesting, as demonstrated by his recent strategy with Apple.

FOMO (fear of missing out) is an unsound basis for purchasing stock. Similarly, apprehension about further price declines alone should not be the sole justification for selling.

Concerns over tariffs have contributed to a significant decline of 21% in the share value of ‘Magnificent Seven’ constituent Nvidia over the last quarter.

Despite this downturn, a substantial majority of analysts – 46 out of 62 – who monitor this semiconductor industry leader maintain a ‘Buy’ rating, with no ‘Sell’ recommendations issued.

Strategies for Portfolio Diversification

Now is an opportune moment to actively assess your portfolio, ensuring it is not excessively concentrated in any single sector—for example, the Magnificent Seven technology companies.

In the current climate, allocating a portion of assets to safe-haven investments such as gold is a prudent strategy. Gold prices have surged by 17% in six months, reaching a record $3,135 per ounce, fueled by projections indicating a potential rise to $3,500.

Investment vehicles like iShares Physical Gold offer exposure to gold bullion, while funds such as Ninety One Global Gold invest in gold mining enterprises. Troy Trojan Fund provides a diversified portfolio encompassing gold, equities, bonds, and cash.

It is also noteworthy that prominent Wall Street firms are increasingly focusing on European markets. Larry Fink, CEO of Blackrock, highlights Europe’s growing efforts to address regulatory obstacles that have previously hampered stock market progress.

Vanguard FTSE Developed Europe ex-UK is a widely recommended index tracking fund.

Blackrock Continental Europe Income Fund and Fidelity European Fund are actively managed funds frequently featured on recommended investment lists.

The FTSE 100 experienced a decline following the tariff announcement. This is unsurprising, given that the £60 billion annual value of goods the UK exports to the US have become £6 billion more expensive due to a newly imposed 10% tariff. However, Goldman Sachs estimates that the effective tariff rate could be lower, suggesting that disregarding UK markets could be a misstep.

The ongoing trend of corporate acquisitions provides another rationale for cautious optimism. International investors appear to view UK markets as undervalued, evidenced by the recent takeover bid for UK microchip company Alphawave by US technology giant Qualcomm.

Selling assets prematurely could be imprudent, making it worthwhile to consider investments in UK-focused opportunities. Fidelity Special Values Trust favors ‘undervalued UK companies trading at attractive valuations.’ Law Debenture Trust holds a mix of equities and a professional services business, generating supplementary revenue streams.

You may be questioning whether it is advisable to withdraw from US markets. However, David Coombs of Rathbones investment management suggests that the tariffs should be interpreted within the broader context of President Trump’s strategic objectives.

This implies that the tariffs might function more as a negotiating tactic than a firmly established policy.

He explains: ‘There is an element of aggressive tactics in these actions. Trump aims to achieve lower interest rates and reduced inflation, fulfilling his promises to Americans to decrease living costs.’

He further comments: ‘Failure to achieve these objectives could create challenges for the Republican party in the upcoming midterm elections in 18 months. Should Congress shift to Democratic control, Trump’s political influence could diminish significantly, a scenario he is likely keen to prevent.’

Again, a strategy of careful observation and measured response appears to be the most sensible approach.

Maximize Tax-Efficient Investment Allowances

Major investment platforms—AJ Bell, Bestinvest, Hargreaves Lansdown, and Interactive Investor—enable investors to initiate a stocks and shares ISA before midnight tonight, allowing for the deposit of cash for later investment. The annual ISA allowance is £20,000, but smaller contributions are also permissible.

You can further mitigate investment risk by employing ‘pound-cost averaging’ – making regular monthly contributions of £100-£200 to a fund or investment trust, rather than a single lump sum investment.

Hargreaves Lansdown emphasizes the advantages of opening an ISA at the commencement of the tax year.

Investments benefit from a longer growth period. Moreover, they gain immediate tax protection, a particularly relevant consideration given the increasing likelihood of tax increases in the UK compared to the uncertain trajectory and impact of international tariffs.