Strategies for capitalizing on bearish market conditions: Key financial decisions that yield returns
Market woes have hit hard due to President Trump's indecisive tariff declarations, leaving worldwide financial players in a lurch.
Despite some market recovery, uncertainty lingers heavily. Trump took another swipe at the US market by labeling Federal Reserve Chair Jerome Powell as a 'major dud' for not reducing US interest rates.
Investors and pension savers are likely feeling a bit down in the dumps as their assets seem to lose value consistently. The S&P 500, the world's leading stock exchange, has dropped by 8% this year, while FTSE All Share is sitting flat for 2025 but still 5% lower than its early March peak.
However, even in the midst of a market downturn, opportunities abound to make the most of this rough situation.
Sarah Coles, the head of personal finance at Hargreaves Lansdown, commented, "Downturns call for tough grit, and sticking with your long-term plan. But that doesn’t mean you should sit idly by. There are chances in downturns to make minor tweaks to improve your investment prospects, and even save taxes in some cases."
Lump Sum Boosts
With the recent reduction in stock prices, clever investors may be eager to make use of the lower prices now available. While many markets have seen some recovery, there are still individual stocks, investment funds, and trusts trading below their previous levels.
The new fiscal year just began, providing investors the opportunity to put their revamped Isa and SIPP allowances to good use. Renewed Isa allowances allow UK residents to invest £20,000 in stocks and shares via their Isa and up to £60,000 via a self-invested personal pension.
Investing a lump sum at the start of the tax year can offer superior returns over time compared to making such investments at year-end.
Coles said, "Many seasoned investors view market falls as excellent buying opportunities. In fact, Hargreaves Lansdown experienced a record day of trading amidst the tariff chaos on 7 April, with most transactions involving investing in various assets."
Lifetime Isa users can take advantage of the 25% top-up provided by the government, while pension holders will also enjoy tax relief. Coles notes that both will give you more bang for your buck, as you can buy more investment units at a lower price and reap greater benefits from market gains.
Rebalance and Tax Management
Over time, some investments will perform better than others, leading to an unbalanced portfolio. Market downturns can help identify whether it's time to rebalance your portfolio.
Coles suggests, "A market downturn may have highlighted that your carefully planned portfolio has become unbalanced over time. In this case, it may make sense to sell some of the investments that have done well and rebalance your portfolio."
Market losses can sometimes prove beneficial for capital gains tax purposes. If you hold investments outside of a tax wrapper, Coles advises, "It's never ideal to sell at a loss, but there are times when it can make sense for your overall investment strategy."
Conclusion
Investing during a market downturn means weighing potential benefits against risks and considering suitable strategies. One should research the market's trends and seek expert advice, if necessary, to make informed decisions.
While immediate exposure to losses is a concern, history has shown that a lump-sum investment can yield better long-term returns than spreading investments over time or waiting for the “ideal” moment. Dollar-cost averaging and diversifying investments across asset classes and strong, resilient assets can help manage risks in a volatile market. Keeping some liquidity on hand also enables capitalization on additional market dips and balancing personal finances.
Ultimately, the best approach depends upon individual risk tolerance, investment goals, and positioning in the market, as well as prevailing economic and political conditions.
- Amid the market downturns caused by President Trump's tariff declarations, opportunities exist for investors to make the most of the situation.
- Sarah Coles, the head of personal finance at Hargreaves Lansdown, advises investors to invest a lump sum at the start of the tax year for superior returns over time.
- Lump-sum investments during a market downturn can provide more bang for your buck, as you can buy more investment units at a lower price and reap greater benefits from market gains.
- In a volatile market, rebalancing your portfolio may be necessary to achieve a balanced investment mix.
- When market losses occur, Coles suggests considering the potential benefits for capital gains tax purposes, even if it means selling at a loss.
- Diversifying investments across asset classes and strong, resilient assets can help manage risks in a volatile market.
- Keeping some liquidity on hand can enable capitalizing on additional market dips and balancing personal finances during uncertain economic conditions.
