As I discussed in my last post, successful investing requires shutting out the ‘noise’ and focusing on the long term. But when the markets look jumpy – which they still are – I know this can seem easier said than done.

Be reassured though, if you’ve got a well-balanced, diversified portfolio, the best option is still usually to stay where you are.

Let’s look at some of the major talking points so far this year.

The ‘Trump effect’ is over – what now?

Investors crave certainty, but it’s difficult to get this when you don’t know what the policies are from one of the world’s largest economies.

Investors in the US were wowed by the ‘Trump effect’, excited by the prospect of tax cuts and deregulation which would be good for the country’s economy. In recent weeks, however they’ve been less enthused – with tariffs on goods from China, Europe and elsewhere, an ensuing trade war and the possibility of recession. What’s the impact? Looking at the Dow Jones (made up of 30 blue-chip US companies) all those gains since November’s election have been wiped out.

US Dow Jones Industrial Average in USD between 5 November 2024 and 11 March 2025. Past performance does not indicate future returns.

The Magnificent Seven have taken a hit

Concentration risk can be extremely damaging for your portfolio.

Tied in with those concerns over the US economy is a big drop in value for the Magnificent Seven. The big US tech firms – Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla –currently dominate global equity markets and therefore investor portfolios. In the year to date, US$1.57 trillion has been wiped off the ‘Mag7’ valuations, with only Meta’s valuation rising.

It’s not just tariffs that have caused the decline; Tesla’s share price was also hit by declining sales in some markets and a backlash over Elon Musk’s support for Donald Trump.

What this demonstrates is the dangers of becoming too reliant on one sector or theme. Concentration risk – holding too much of one sector, country, or asset class, leaves you open to big losses if sentiment turns.

Source: AJ Bell, LSEG. Data to 7 March 2025. Value change in US$ billions. Past performance does not indicate future returns.

Investors are rushing to buy up defence stocks

Making investment decisions based on short-term factors is a high-risk strategy

One area of the market that has seen a boost recently is defence. Since the turn of the year, more investors are buying shares in weapons manufacturers and other companies with significant defence revenues, as they react to the latest developments in Ukraine. With the US withdrawing security guarantees, defence budgets in many European countries are expected to rise.

For many of my clients, who have an eye on responsible investing, defence firms will be a difficult topic to tackle. But I view this recent rush as short-term speculation rather than a long-term investment. You’re effectively gambling on a market outcome. As I discussed last month, it’s better to focus on the known knowns, rather than trying to second guess such a huge geopolitical issue.

Diversification is the key

For me, these examples demonstrate the importance of diversification.

Ensuring your portfolio is not dominated by one region, sector, style of investing – such as those stocks classed as ‘growth’ or ‘value’ – or even asset class, means you avoid having to make short-term decisions based around volatility.

So when there is a decline in one area, such as US equities, you’re covered elsewhere – whether that’s stocks from other regions, such as Europe or Asia, or other diversifiers like bonds or real estate.

As this analysis from JP Morgan shows, growth stocks (which would include those Magnificent Seven companies) were the top-performing style in four out of the last six years. But in the year to the end of February, they were among the worst performers. By contrast value stocks, commodities, and global real investment trusts (REITS) were the top performers.

This doesn’t mean selling out of one asset class and piling into another. The key is having a diverse portfolio that balances out the risk.

It’s your timeline that matters

Even Donald Trump, who regularly uses the stock market as a barometer for his and others success, commented “markets are going to go up and they’re going to down,” when asked about the most recent market sell off.

What investors need to remember is that, to a certain extent, what the market’s doing right now is only a snapshot, your own timeline is more important. With a multi-asset model portfolio through an adviser, things are different. We can make tweaks along the way and at times, personal circumstances might dictate a bigger change, for example, when encountering a life event such as moving home, switching jobs, divorce or retirement. The point is, we adjust this in line with your own life and goals, not guided solely by events we can’t control.

So, in the face of market unrest, even though staying put sounds like it’s an over-simplification, it really is the best course of action.