Retail investors should play the waiting game amid Trump volatility, say experts

Gold, government bonds, index funds, healthcare and infrastructure equities considered worth investing in during market volatility

A diversified portfolio that includes bonds, dividend-paying stocks, index funds and ETFs can help investors navigate periods of volatility. Getty Images

Investors should remain disciplined, patient and focused in the long term in an environment marked by US President Donald Trump-driven volatility and elevated interest rates, analysts say.

Several factors have combined to drive the current sell-off in global equity markets.

Firstly, Mr Trump’s aggressive trade and tariff policies have heightened geopolitical tensions and disrupted international trade flows. His administration’s unpredictability has triggered significant investor uncertainty and reduced confidence across markets worldwide, according to Jacob Falkencrone, chief investment strategist at Saxo Bank.

“Secondly, markets are increasingly pricing in recession risks, particularly in the US. Mr Trump's ambiguous statements regarding the economy’s health and the ongoing disruption from tariffs have intensified these fears,” he says.

“Additionally, persistently high interest rates, driven by sustained inflationary pressures, are squeezing corporate profits and consumer spending. Finally, the equity sell-off has been amplified by investor repositioning away from ‘Magnificent Seven’ technology companies, which dominated portfolio returns for years but have recently faced sharp corrections amid lowered growth expectations, increased competition and geopolitical pressures.”

Equities sentiment has soured rapidly in recent weeks as economists withdraw their expectations for economic growth based on the potential for a trade war.

At the same time, the mega-cap tech stocks that have largely driven the S&P 500’s more than 50 per cent gain over the past two years are caught in a sell-off, as investors grow doubtful about the immediate future of artificial intelligence and, more broadly, retreat from riskier growth assets.

Adopt a long-term view, diversify

Vijay Valecha, chief investment officer at Century Financial, says the acceleration of retail outflows from US equities confirms the move towards more defensive investment bets as people try to safeguard their portfolios in uncertain times.

The frantic trading activity witnessed among 401(k) holders during the sell-off is evidence of increased market nervousness and the need to ride through volatile market environments, he adds.

“A long-term view is perhaps the most critical rule that retail investors must follow during volatile markets. Rash decisions in response to volatility can result in poor decisions. Conversely, a well-considered investment plan may enable investors to ride out the storm and take advantage of opportunities over the long term,” he suggests.

“Diversification is perhaps the most important strategy that retail investors can use during periods of high market volatility, where one invests across different asset classes, sectors and regions to reduce the exposure to risk from any single market or sector.”

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Mr Falkencrone recommends investors to look beyond US mega-cap tech stocks, “whose era of easy performance appears to have ended”. Instead, they should consider spreading investments across different sectors and geographic regions, including European markets, which are benefiting from strong fiscal stimulus and increased investments in defence and infrastructure. European equities also currently offer more favourable valuations compared to US markets, providing a potential margin of safety, he says.

Selective exposure to emerging markets, particularly in Asia, also presents opportunities given attractive valuations and targeted economic stimulus measures, he reckons.

Moreover, investors should focus on high-quality, dividend-paying stocks and regularly rebalance portfolios, he suggests.

Strategies to follow

Michael Chu, head of investments at Sarwa, says if investors are primarily in US markets, dollar-cost averaging – consistently buying over time, especially during dips – can be an effective approach. Also, look for quality companies if investing in individual stocks and stay cautious about inflation risks, he advises.

Mr Valecha suggests considering dividend calendar investing, as it involves investing in a diversified portfolio of dividend stocks with staggered payout dates throughout the year. This will create a reliable income stream instead of a single payout date, he explains.

Also, retail investors can make use of laddering, where they invest a fixed amount of money regularly, regardless of what happens in the market. By investing a fixed amount regularly, you will buy more shares when the market is low and fewer shares when the market is high, Mr Valecha points out.

Apart from this, hedging instruments like options or inverse exchange-traded funds exist where investors can mitigate against potential losses during times of higher market volatility and uncertainty, he adds.

What assets to invest in?

To effectively navigate this challenging period, investors should build portfolios around a combination of asset classes.

Tony Hallside, chief executive of STP Partners, picks gold as a reliable safe-haven asset, often rising when equity markets stumble, as investors seek protection against uncertainty. It has historically performed well during economic downturns and geopolitical stress, making it a strong defensive play, he says.

Government bonds, particularly US Treasuries, and high-quality investment-grade bonds also offer a degree of security, with their lower risk profile and potential for price appreciation if interest rates eventually decline.

“Beyond traditional defensive assets, the healthcare sector presents an attractive opportunity. It tends to be less correlated with economic cycles, as demand for healthcare services remains steady regardless of broader market conditions,” Mr Hallside says.

“Infrastructure investments, including utilities and essential services, provide another layer of stability since they generate consistent cash flows even during downturns.”

Maintaining some liquidity in cash or short-term instruments allows investors to stay flexible and capitalise on opportunities when the market presents attractive entry points, he adds.

Market pullbacks can present buying opportunities in US equities, particularly for high-quality companies that may be temporarily undervalued

Michael Chu,
head of investments, Sarwa

Mr Chu from Sarwa cites how some investors might look to commodities such as oil, agricultural products and industrial metals, which can benefit from supply and demand shifts. Real estate investment trusts also offer exposure to real estate while providing potential income, he says.

“Market pullbacks can present buying opportunities in US equities, particularly for high-quality companies that may be temporarily undervalued. Investors often use downturns to accumulate shares at lower prices, taking advantage of discounted valuations before the market recovers,” Mr Chu suggests.

Mr Valecha suggests investors should seek out companies with a track record of paying consistent dividends, such as REITs, utilities and consumer goods companies.

“Index funds or ETFs that follow a wide market index, like the S&P 500, can diversify and lower exposure to single stock risk,” he says.

“A diversified portfolio that includes high-quality bonds, dividend-paying stocks, index funds or ETFs can help investors navigate periods of volatility. However, investors must assess their investment goals, risk tolerance and time horizon before investing in any asset class.”