"Apocalypse or just everyday market life? Five tips for investors in turbulent times"

The stock markets are in an uncertain situation due to Trump's protectionist measures. In his column, Ali Masarwah, fund analyst and managing director of financial advisor Envestor, explains how investors can remain calm in volatile times. 
 

14 April 2025. FRANKFURT (envestor):  In recent weeks, the DAX and co. have experienced breathtaking ups and downs. Trump's tariffs and their partial withdrawal have shocked investors. Is this the start of a crash? Will MAGA-America plunge the global economy into a crisis with protectionist measures? Or has Trump simply gone too far? There are many extreme scenarios, but investors should focus on what they can influence and not get rattled, says Ali Masarwah, fund analyst and managing director of financial advisor Envestor.

Equity investors have been spoiled in recent years: since the financial crisis in 2009, the markets have experienced an almost uninterrupted upward trend. Setbacks such as in 2018 (interest rate fears), 2020 (coronavirus) or 2022 (inflation) were painful, but always short-lived. Today, many investors are panicking, as they do in every extreme situation on the markets. The current situation may be worrying, but it is by no means unique. Even the coronavirus crisis has shown that those who remain rational and avoid emotional decisions can profit in the long term. Panic is rarely a good guide. Investors should not let panic infect them. Five tips for doing the right thing in volatile times.

1. is your portfolio balanced?

A well-balanced portfolio is the foundation for stability in turbulent times. However, many investors have “let their portfolio run wild” in recent years and neglected rebalancing. However, regular adjustment of the asset allocation to the original objectives is a prerequisite for a stable portfolio. If you built up a portfolio with 60 percent equities and 40 percent bonds five years ago, sharply rising share prices may have shifted this allocation to 80 percent equities and only 20 percent bonds in the meantime. This means that your portfolio has become riskier than originally planned.

In a market crisis, a disproportionate equity allocation can be particularly painful. Imagine you have invested 100,000 euros and suddenly lose 20 percent with an equity allocation of 80 percent - that's a loss of 16,000 euros. If you had kept your original allocation, the book loss would only have been 12,000 euros.

Tip: Check your asset allocation even in normal stock market times and adjust it to your long-term goals. If your equity allocation is too high, it could also make sense to build up bonds or cash in the current crisis. Incidentally, rebalancing does not have to mean selling winners and buying losers. If you have enough cash on hand, you can save trading costs by only adding to losers and not selling winners.

2. have your financial circumstances changed?

You should always translate new realities into your portfolio world. A portfolio should never be static because it is always part of your overall balance sheet. Let's take the case of a young career starter with little capital to begin with: for him, his manpower plays a decisive role as so-called human capital. Losses on the stock market are less relevant to him than the ability to generate income in the long term. They should therefore take care of their human capital: quitting smoking and doing more sport are therefore more important here than, say, increasing a savings plan from 50 to 75 euros. Those who earn more, on the other hand, should definitely rebalance consumption and investment and increase their savings plans in funds and ETFs.

Tip: Analyze your entire financial situation - including property ownership, insurance and pension plans - before making any decisions. It is helpful to cut off old habits. Anyone who has realized that the life insurance policy given to them by their grandparents or parents is not an optimal retirement vehicle should draw the consequences and consider whether it might not make sense to let the insurance policy rest and take out a fund savings plan or ETF savings plan instead. Insurers can insure against risks, but they are not the best asset managers.

3. how strongly do market changes influence your strategy?

The introduction of new tariffs or geopolitical tensions can shake the markets in the short term - as is currently the case with the protectionist measures taken by the USA under MAGA-America. However, such shocks are often less serious than initially feared. Let's think back to the coronavirus crisis: in March 2020, markets collapsed worldwide, but an impressive recovery phase began just a few months later. The financial crisis of 2008 was in turn the basis for the low-interest phase until 2022. During this phase, investors enjoyed the longest and strongest bull market phase in the last 30 years.

Tip: Don't be distracted by short-term events or the daily news flow. Long-term investors should maintain or even increase their savings plans when prices fall - because favorable entry prices are the guarantee for high long-term returns.

4. people are programmable - even in a good sense

Emotions are the biggest enemy of rational investment decisions - as the now scientific discipline of behavioral finance has shown us time and again. A classic example: After a 50 percent drop in share price, many investors feel compelled to sell - for fear of further losses. But it is precisely at such moments that the best buying opportunities often present themselves. Play a trick on your emotions and compare the situation on the markets with a price reduction in the supermarket: do you leave your favorite jam when a price discount beckons, or do you turn away and decide not to buy the jam until its price has doubled?

Tip: Consider every decision carefully and avoid impulsive action out of fear or euphoria. Long-term investors should view price losses as an opportunity - provided their risk-bearing capacity allows this.

5. optimize the controllable: costs instead of market forecasts

No one can reliably predict the short-term course of the markets - not even experienced experts or fund managers. What is certain, however, is that the costs of your portfolio directly influence your return. For example, an actively managed fund with an annual fee of 1.5 percent must perform significantly better than an ETF with a fee of just 0.2 percent to achieve the same return.

Tip: Instead of chasing the market or buying expensive funds or insurance policies, you should opt for cost-efficient products such as ETFs or low-cost funds that reduce trading costs and remain invested for the long term.

by Ali Masarwah, 14 April 2025, © envestor.de