Weathering the storm: Investing during the Trump slump

Earning returns from investment is risky. Kiwi investors, and savers around the world, are being reminded of that during these turbulent times. The value of KiwiSaver funds, or managed funds or any kind of shares or fixed interest bonds or property can go down as well as up. It is important to stay calm when you see your hard-earned savings diminish. You can draw comfort from the past - declines have always been followed by larger increases.

The discussion that follows provides some background on what is currently happening in politics and financial markets, and makes suggestions for ways to weather the storm:  

• Prepare for ongoing risk and volatility
• Avoid taking in unnecessary risk
• Invest in line with your values

What’s happening?

During the US election, the international community looked on with trepidation at the prospect of a second Trump presidency. Even so, few would have predicted the extreme policy changes of the first 100 days. Laws an

d policies protecting the environment, reducing greenhouse gas emissions and supporting vulnerable people were swept away, along with a fundamental change to the post-WW2 mechanisms for global cooperation.

However, for the financial analysts and investors that control the large pools of capital that move global share markets, it all started with high expectations. Their optimism ramped up share prices, on the assumption that the election of Trump would lead to less regulation and higher profits for business.

But the blizzard of Executive Orders that followed has cast doubt on whether Trump’s approach to issuing threats, making deals and autocratic decision-making will really be good for business. There has already been a sharp fall in share markets and many analysts are predicting that political meddling and policy uncertainty will lead to an economic downturn. 

So what should investors be doing?

1. Prepare for ongoing risks and volatility

Major investors stayed supportive during the initial blitz of executive orders. The US share market hit new highs in the days after Donald Trump took office on 20th January this year. 

However, the announcement of increases in tariffs for exports to the US started a steep slide in markets. Over the next seven weeks, the S&P 500 fell 19%. The US share market recovered some of that ground in April as most tariffs were postponed, and at the end of April, were down by 9% from their peak.

Share markets largely recovered in Europe, Australia and NZ. Even China, facing tariffs of 145%, has recovered most of the initial share market decline by late April. 

So can worried NZ KiwiSaver investors now breathe a sigh of relief? Not yet. 

The effect of rapid policy changes on the real economy is still emerging. The IMF and others have downgraded their forecasts for economic growth In the face of disruptions to supply chains and investment plans. Uncertainty and abrupt policy shifts are bad for business. Another recession, starting from the major economies, is now more likely. 

At the same time, tariffs on imports will raise costs for business and prices for consumers. The prospect of stagflation - stagnation coupled with inflation - makes it difficult for central banks to act. Lower interest rates fuel inflation while higher interest rates can deepen the recession. Political attacks on the Governor of the US Federal Reserve have also undermined confidence in good policy-making.

In the longer term, the undermining of the mechanisms to keep international peace and economic stability has eroded trust and international cooperation. Unilateral action by the US, in support of deal-making, creates huge risks for smaller countries, such as New Zealand, caught between the US and China. As the African proverb says: “When elephants fight, the grass gets trampled.”

This calls into question any assumption that this will be a short downturn and a quick recovery. History shows that few recoveries from share market declines are as quick as the five month recovery from the COVID-induced downturn. For example, it took six years for share prices to recover from the Global Financial Crisis and eight years from the Dotcom bubble.

The implications for investors is that the ‘Trump slump’ may be far from over. As we are reminded by most financial advisers, this doesn’t mean you should sell your shares or retreat to a less risky fund. As shown over successive share market downturns, markets will bounce back. 

But the prospect of further economic disruption means that you should look carefully at the risk profile of your investment, especially if you are planning a major purchase, such as saving to buy a first home or for your impending retirement. The risk that you feel comfortable with depends on factors like how long you are investing for, and your tolerance you have for uncertainty and potential losses. 

If a downturn is longer and deeper, and you need funds in the short term, you may want to plan ahead and ensure that you are not trapped in a falling market when you need your funds. A good tool is the Sorted risk profiler. Consider getting advice before making a decision. If you need advice, you should contact a financial adviser - Mindful Money has a directory of financial advisers with expertise in ethical investment. 

If you are making changes, consider doing it in stages, so you are not prone to the effect of sudden falls in share prices. And be open to opportunities. The silver lining in any fall in share prices is the potential for higher gains when prices go back up.

2. Avoid taking on additional risks

The Trump administration has removed many of the policies that have supported renewable energy and the climate transition, and removed some of the regulations on fossil fuel development. However, this does not change the underlying economics. The costs of renewables, particularly solar power and batteries, have continued to fall. Research shows that, in most cases, using renewable energy to generate electricity is lower cost than coal or gas. Meanwhile the cost of electric vehicles is falling and the range is increasing. 

Actions by the Trump administration have not changed the warnings from the International Energy Agency that demand for oil, gas and coal will fall before the end of the decade, and the decline may be steep. Yet most of the major oil and gas products are not heeding the warnings and are continuing to open up more production. They face a growing risk of stranded assets - reserves and production infrastructure that will not be needed as production declines. 

The record of financial returns from the oil and gas sector has been abysmal over the past decade, increasing by 10% compared with the market increase of almost 300%. As climate impacts intensify and renewable energy investment increases, the risks from fossil fuels are likely to intensify. The Mindful Money website has a list of the New Zealand funds that are Climate Friendly.

The same logic applies to many other categories of unethical investment. Companies that behave badly on human rights violations or animal cruelty or environmental damage are far more likely to be exposed than in the past - global connections and internet means that harmful practices are exposed, even when hidden or in remote locations. When company reputation and brand suffers, it is hugely damaging to the company’s value. 

  3. Find an ethical fund

Most financial advice starts with the observation that markets invariably rise again after a fall, and you should not try to time the market by selling your shares or retreating to a less risky fund during a downturn. Generally, that is good advice. 

But the full version of the advice is often shortened to say that KiwiSaver or other investors should stay in their current fund. This is unnecessarily restrictive. It would be better if the advice was framed as saying that you should stay within the same risk category. If you switch from one growth fund to another growth fund, you will still have exposure to future market rises as the market recovers. 

Mindful Money has noticed this trend over several downturns. The number of people switching to a more ethical fund falls sharply when markets fall. Most investors interpret the advice they are given as staying within the same fund.

If you want to find a more ethical fund (and our recent survey shows that most Kiwis want to), you can switch within the same risk category and still have a similar exposure to the upside when markets recover. The degree of risk in your fund is generally the same if you switch from one growth fund to another growth fund. Similarly for balanced or conservative funds. 

Overall, there is evidence to show that investing ethically provides good returns. On average, decades of research shows returns from ethical investing to be at least as high, or higher, than traditional investing. This is reflected in recent experience in New Zealand. And analysis shows ethical investments have a good record of weathering the downturns. 

Mindful Money’s Fund Finder helps you find a fund that aligns with your values. It is a free service, and fund providers generally do not charge a fee to switch your fund. And research shows that financial returns from ethical funds are, on average, at least as high as from traditional funds. You can do well, as well as doing good.

Disclosure

This article is for informational purposes only and does not provide financial advice. The information is current to 1 May 2025.

Mindful Money is a charity providing transparency on KiwiSaver and retail investment fund portfolios and education for the public. 

You should look at the Product Disclosure Statement for any fund before you switch and you may want to talk to a registered financial adviser.

Barry Coates

Mindful Money co-CEO