Protect your wealth from the Trump slump: As the stock market plummets, experts reveal what to do

The Trump bump has become the Trump slump. Stock markets worldwide are in turmoil, leaving investors bemused and anxious about their Isas and pensions.

Just weeks ago, most on Wall Street believed the 47th American president would be good for US share prices.

But Donald Trump has instead taken a much harder line on tariffs than expected, provoking worldwide alarm and sparking fears of a US recession. The fear of a looming ‘Trump-cession’ has rocked Wall Street. It has also sent shockwaves through the UK and other markets. The old adage: ‘when America sneezes, the rest of the world catches a cold’ is holding good.

Even shares in the formerly all-conquering Magnificent Seven leading tech companies have suffered.

Worst affected is Tesla, the electric car empire of Elon Musk, Trump’s self-declared ‘first buddy’. Its shares are down dramatically since the start of the year, brought low by Musk’s fall from favour among his planet-loving clientele.

As a proud native New Yorker, with close connections to Wall Street, Trump has always regarded the stock market as a barometer of his success. In the past he has been careful to avoid plummeting share prices.

Suddenly, however, it seems that he is willing to contemplate what he calls a ‘transition’ – short term pain in return for long term gain for the US – as he sees it.

Falls in the US and other key stock market indices show that no one knows how long this period of pain will last, or how painful it could be. Even if shares rally, this apprehension will linger.

What should investors do? Many UK savers have substantial holdings in US shares, especially tech, either directly or through pensions or investment funds.

It’s usually a bad idea to sell everything in a panic. It would be wise, however, to take a cold hard look at your portfolio.

Richard Flax, Chief Investment Officer at Moneyfarm, argues: ‘Be wary of trying to time the market [pick the right moment to sell]. We think it’s important to stay invested for the long-term, even during periods of volatility, and to maintain a well-diversified portfolio.’

Instead it makes sense to build a cash buffer, explore safe havens and watch for opportunities to buy valuable assets at bargain prices.

BUILD A BUFFER

Basic sound money management never goes out of style. This is the moment to build a cash pile if you haven’t already.

If you are still working, savings that are equivalent to six months’ salary is the ideal position. If that would be a pipe-dream as yet, start small and try to build a buffer. National Savings & Investments, the Treasury-sponsored bank, offers a 100 per cent guarantee over every penny invested. Scour the best buy tables for the most attractive rates.

Consider paying off chunks of your mortgage, if the terms of the loan deal permit, and taking steps to clear credit card and other debt.

If you want to reduce your outgoings, check your bank statement to ensure that you are only paying for subscriptions to streaming and other services that you value and use regularly. Also look into the fixed deals your energy supplier is offering: fuel bills go up next month.

LOOK BEYOND THE US

US tech stocks, such as Apple, Meta, Microsoft and Nvidia, have produced awe-inspiring returns in recent years. These titans should still be a part of your portfolio, but you may be – unknowingly – hazardously overexposed to these stocks since they constitute a large portion of many global investment funds. The funds’ factsheets, which are available online, will spell out which stocks they hold.

Rupert Goodall of Man AHL warns of the dangers of inertia: ‘Investors would be remiss to forget just how far markets can fall.’

This week’s chaos is an alert to diversify, exploring stock markets that have been overshadowed by the star quality of US tech.

THINK GOLD, NOT CRYPTPO

The US is in a ‘risk-off’ moment. This could suddenly reverse as animal spirits return. But the clearest sign large investors are putting on their tin hats can be seen in the 14 per cent drop in the price of bitcoin to $81,835 (£63,310) since January. Last December, at the height of the Trump bump, the price hit $106,490 (£82,385).

By contrast, the price of gold, the traditional safe haven, has risen over the same period by 10 per cent to a record $2,912 (£2,253), with some analysts forecasting that it could be above $3,000 (£2,321) by Christmas.

This underlines the metal’s age-old status as a refuge in an era of uncertainty, but also the extra demand that is set to flow from the artificial intelligence (AI) revolution.

Gold is a small, but essential element in microchips and in AI-enabled devices like phones and for the data centres that power this revolution.

You can gain exposure to gold through exchange traded funds (ETFs) like iShares Physical Gold which put money into bullion, or through funds like NinetyOne Global Gold which owns shares in gold mining companies.

BACK BRITAIN

British investors have been out of love with UK shares. But American corporations and funds perceive these islands as a land of bargains, a view underlined by the pick-up in takeover activity this month.

These predators are hoping to seize companies for next-to-nothing. Also on the prowl are activist investors pressing for major improvements at groups such as BP and Unilever. The ranks of these activists include Nelson Peltz who wants to see change at Unilever, the Dove and Domestos group. Peltz is the father-in-law of Brooklyn Beckham.

It suggests that you should continue to hold any UK funds you already have. Also, consider making monthly contributions into investment trusts such as City of London and Temple Bar with very consistent long term records. In an era of turmoil, drip feeding money into the markets, rather than committing large lump sums can help you sleep easier.

City of London’s largest holdings include BAE Systems, the defence contractor, one of the companies set to benefit from the recently announced boost to UK defence spending. The other beneficiaries of this radical policy shift include: Babcock, Chemring, Melrose, Rolls-Royce and QinetiQ.

Not so long ago, defence companies did not comply with the requirements for ethical ESG (environment, social and governance) investing.

But the perception of what is ethical is shifting, away from narrow ‘woke’ definitions. The defence industry is seen as not only crucial to national security but also to the upholding of civil liberties. Both these areas are central to the social part of ESG.

THINK EUROPEAN

The European stock markets are fast winning a new fan base. Global fund managers view these markets as cheap – and expect them to outperform all others this year. The German index, the Dax, has been already been hitting records, thanks to the economic policies of the new government – providing the Greens don’t stymie plans to ramp up spending on defence.

The White House has made threats of tariffs of 25 per cent on European cars and other goods. But Trump is yet to follow through – and offsetting these fears is optimism over the potential gains for European defence stocks.

In the wake of Trump’s insistence that European countries take more responsibility for their own defence, EU states are raising expenditure on munitions of every type.

This trend has already boosted shares in armaments and aerospace manufacturers, such as the Italian Leonardo and the German conglomerates Rheinmetall and ThyssenKrupp. WisdomTree Europe Defence, a new exchange traded fund (ETF) launched yesterday, will back these and other defence groups.

Hopes are also high that European companies, such as the French infrastructure specialist Legrand will play a major role in the reconstruction of Ukraine, if a peace accord can be reached.

It also expected that the wave of deregulation sweeping through America under the Trump administration will bestir the shredding of the red tape that has Europe in its stranglehold. The old rule that ‘the US innovates, the EU regulates’, is being challenged.

Such reforms will not happen overnight. But in the meantime the fortunes of European multinationals do not depend on their domestic economies, as these businesses operate on the worldwide stage.

Fidelity European, the investment trust, has big names like German software group Sap, L’Oreal, Nestle and Hermes, maker of the – apparently – reassuringly expensive £10,000 handbags. European shares can be bought through major investment platforms.

EMBRACE CAUTIOUS OPTIMISM

If you are investing for the long-term and have some cash, sit on it, watch and wait for opportunities to emerge.

When the mood becomes less frantic, US shares could become an attractive proposition again.

Matt Britzman of Hargreaves Lansdown argues: ‘If the US can steer clear of a significant recession, risk-taking could come back to life.’ This could be your cheap route into the AI industrial revolution which is underway and set to change the world, whoever is in the White House.