It’s not a shock to see investor confidence crashing right now. UK shares are on the ropes as the market weighs up the impact of ‘Trump Tariffs’, matching sharp falls on global stock markets.
According to Nutmeg, almost a third (31%) of 1,000 investors it surveyed say they “don’t feel confident about the prospect of positive investment returns this year“.
The number is even grimmer for experienced investors. Some 38% of those with a decade or more of stock picking experience said they “lack confidence in the investment outlook“.
Notably, the survey was taken between 9 and 16 January, before worries over trade wars hit fever pitch and stock markets plunged. It’s reasonable to expect that these numbers would be far worse today.
Keeping calm
The ride may remain bumpy for some time given the broader economic and political backdrop. Fears over the global economy and stubborn inflation were high even before tariff talk exploded. The evolving geopolitical landscape also throws up uncertainties.
At times like this, though, it’s critical to look past the noise and focus on the long term. Past performance is not always a reliable guide to the future. But history shows us that stock markets have always recovered from volatile periods to reach new record peaks.
Take the FTSE 100, for example. In the 21st century alone, it has weathered foreign wars, a banking sector meltdown, a eurozone debt crisis, and a pandemic. Yet over the period it has still risen 24% in value, striking new closing highs of 8,871 points just this month.
The S&P 500‘s performance has been even more impressive, rising 292% since 1 January 2000.
Thinking long term
I believe that the long-term outlook for global stock markets remains extremely bright. And I’m far from alone in my thinking.
James McManus, chief investment officer at Nutmeg-owned JP Morgan, says that “we see plenty of opportunities and reasons for optimism for investors that are able to keep a cool head and remain focused on the long term“.
He notes that “many of the building blocks for long-term investment performance – such as real term wage growth, high employment levels, strong company earnings and stabilising, lower inflation – are in place“.
Diversifying for success
By creating a well-diversified portfolio, individuals stand a better chance of riding out bouts of volatility and maximising their long-term returns, too.
Investment trusts such as the City of London Investment Trust (LSE:CTY) are extremely popular vehicles for investors looking to diversify. These exchange-listed companies invest in a variety of other businesses in order to spread risk and caputure different investment opportunities.
The City of London trust has holdings in 80 large, medium, and small companies, and has a 60% portfolio bias towards bigger firms, which provides it with added robustness. It is well spread by sector, too, and major holdings include HSBC, Unilever, and BAE Systems.
With four-fifths of the trust tied up in UK shares, it carries more geographical risk than more global funds. But on balance, I still think it’s an excellent option for investors to diversify.
Since 2020, it has delivered a healthy average annual return of 8.4%.
