Preparing for the New Tax Year: How Will Tariffs Impact the Current Markets in April 2025?

One of the most important aspects of a new tax year is the renewal of your various tax allowances, offering you fresh opportunities to optimise your financial strategy.

Utilising your ISA and pension allowances during this time could prove to be a strategic choice. The timeless adage of "buy low" rings especially true when prices are down from where they were. Are they at the lowest they will get to? No one knows, but they are lower than they were a few months ago.

Please note that this does not constitute financial advice, and it is merely independent thoughts. The key thing to note is that markets will always go up and down and there is always the risk of losing money when investing.

In times like these, when it's all too easy to be swayed by the noise of market pundits and tactical asset allocation promoters, all shouting...

"Buy Bitcoin!" 

"Sell the Magnificent Seven!" 

"Underweight America!" 

"Overweight Europe!"

We must resist the temptation and tune out the distractions. As Queen Mary wisely remarked, "To do nothing is the hardest job of all, and it will take every ounce of energy you have." I believe these words will remain relevant in many of the significant market movements we encounter throughout our investment journeys.

As the world confronts the possibility of a global trade war, triggered by the reciprocal tariffs imposed by the U.S. administration, it may feel as if we are facing the brink of the next major downturn.

Market declines are temporary, while long-term growth is permanent

With markets fluctuating wildly due to new U.S. tariffs and geopolitical tensions, it's no surprise that many investors are feeling anxious, with some even tempted to withdraw their money and wait for calmer times.

However, history suggests otherwise. Time and time again, it has proven to be better to stay invested and ride out the storm.

Over a century of market data reveals one clear truth: declines are temporary, while advances are permanent.

This chart showcases every major decline in the UK equity market over the past 100 years, spanning events from the Great Depression and oil shocks to Black Monday, the Dotcom crash, the Global Financial Crisis, and COVID-19.

The blues are the periods of rallys in the markets (known as Bull runs), and the reds are the periods of declines in the markets (known as bare runs).

The pattern is striking: while markets do fall, they also recover—always and strongly.

Of course, there are no guarantees. But history strongly indicates that temporary pain is often followed by a substantial and lasting advance.

A similar pattern has emerged in the U.S. market. In fact, Morningstar's analysis of 19 bear markets in the U.S. over the past 150 years reached the same conclusion: although market declines vary in length and severity, they always recover and eventually reach new highs.

So, while headlines may alarm us and nerves may fray, it's important to remember that market declines may test our patience, but the long-term trajectory continues to reward those who stay the course.

There is always a reason not to invest..

The current stock market and the broader economic outlook feel particularly uncertain, especially following the global trade tensions that have arisen due to tariffs imposed by the US administration.

In reality, the world is almost always in a state of flux, and there is rarely a "perfect" moment to invest.

A chart illustrates more than 50 years of significant economic and geopolitical crises, which include the Watergate scandal, the 1976 Sterling crisis, the Cold War, the fall of the Berlin Wall, Black Monday, Black Wednesday, the Dotcom Bubble, the European Sovereign Debt Crisis, the Global Financial Crisis, and COVID, among others.

Despite these challenges, £1,000 invested in 1970 in a diversified basket of global equities would be worth an impressive £263,000 by December 2024.

You didn’t need to pick the winners or time the market. All you had to do was invest in a well-diversified portfolio, remain patient, and avoid making hasty decisions.

The capital markets are largely unaffected by politics in the long run

No matter who occupies Number 10 or the White House, it's always beneficial to stay invested.

So, when the next election cycle arrives: If your preferred candidate wins, celebrate, express your gratitude, and continue to stay invested.

If your candidate loses, you might want to sulk or protest peacefully if you choose. However, whatever you do, remember to stay invested. Don't undermine your financial well-being out of frustration.

Market concentration is a characteristic of the market, not a flaw

Recently, there has been significant concern about how the "Magnificent Seven" (Nvidia, Alphabet, Amazon, Apple, Meta, Microsoft, and Tesla) have dominated U.S. equity returns. Some even claim this poses an existential threat to index investors. However, data suggests otherwise.

Research by Professor Bessembinder reveals that this phenomenon is not new. Since 1926, only 3.4% of U.S. stocks have accounted for all net wealth creation in the market. If you think this is exclusively an American issue, reconsider.

Bessembinder's global study, which examined 64,000 stocks from 1990 to 2020, found that the top 2.4% of firms worldwide were responsible for all net wealth created during that time. Outside the U.S., just 1.41% of firms accounted for all net market gains.

The chart below illustrates that the top 5% of publicly traded companies not only generate substantial net returns for investors but also compensate for the losses of all other unprofitable companies.

Return concentration is not only the norm; it is fundamentally how markets operate. Therefore, global equity index investors have no reason to be overly concerned about this trend.

In summary, the wealth of data from the last century provides a vivid and humbling perspective—one that keeps us grounded, focused, and resilient on our individual investment journeys!

If you would like to discuss your own personal financial situation then please visit my personalised advice page.