The Power of Long-Term Investing: Overcoming Emotional Reactions to Tariff News
It Feels Different This Time—But It Probably Isn’t
Market volatility is a familiar part of investing, yet every time it occurs, it feels uniquely challenging. This perception—that “this time is different”—is often a psychological trap that can lead investors to make costly mistakes. In the current environment, tariffs have taken centre stage as a source of uncertainty, amplifying fears and unsettling markets.
The Role of Tariffs in Today’s Volatility
Tariffs are essentially taxes on consumers and businesses. They are a blunt policy tool, often ill-suited for addressing complex global issues. The administration’s steep and aggressive tariff policies have been described by some economists as a “self-inflicted catastrophe,” creating ripple effects across global markets.
For investors, this type of self-inflicted damage is particularly hard to endure. While market volatility is expected and normal, the current situation feels different because of its direct connection to deliberate policy decisions. Tariffs disrupt trade flows, increase costs for businesses, and ultimately create uncertainty about future economic growth—all factors that weigh heavily on investor sentiment.
Why It Always Feels Different
Each period of market turbulence feels unique because it is tied to specific events dominating headlines. In this case, tariffs are driving much of the uncertainty, but in past instances, it may have been a pandemic, interest rate hikes, or geopolitical tensions. The details differ, but the underlying patterns of volatility—and investor reactions—are remarkably consistent.
Behavioural science explains why this happens:
Loss Aversion: The fear of losing money often leads investors to overreact to short-term events like tariff announcements.
Action Bias: Feeling compelled to “do something” during uncertainty can result in hasty decisions.
Herd Mentality: Following others’ reactions to news about tariffs or other events can exacerbate poor decision-making.
Recognising these biases is key to avoiding mistakes and maintaining perspective during volatile times.
The Cost of Emotional Decisions
When investors react emotionally—whether by panic selling or chasing perceived safe havens—they often lock in losses or miss out on recovery opportunities. Evidence consistently shows that staying invested through periods of turbulence tends to yield better long-term outcomes than attempting to time the market.
How to Stay Focused Amid Tariff Uncertainty
While the headlines about tariffs may feel urgent, they are rarely helpful for long-term investment success. Instead of reacting to short-term noise, focus on these fundamentals:
Block Out the Noise: Avoid overreacting to sensationalised media coverage about tariffs or market movements.
Stick to Your Plan: A well-thought-out investment strategy provides a roadmap for navigating uncertainty.
Focus on What You Can Control: Concentrate on your savings rate, asset allocation, and long-term goals rather than trying to predict market movements.
The Long-Term Perspective
While short-term fluctuations caused by tariffs or other events can be uncomfortable, they are part of the investing journey. Over time, economies grow, trade adapts, and markets recover from downturns. By staying focused on your long-term goals and resisting emotional reactions, you give yourself the best chance of achieving financial success.
Even though this round of volatility feels unprecedented due to its connection with tariffs, history reminds us that markets have weathered similar storms before—and recovered. The principles of successful investing—discipline, diversification, and patience—remain constant regardless of current uncertainties.
Conclusion
Although it may feel different this time around because of tariffs and their immediate impact on global markets, it likely isn’t. Volatility is inherent in investing, but reacting emotionally or trying to time markets often leads to worse outcomes than staying the course. By focusing on your long-term plan and blocking out short-term distractions like tariff-related headlines, you can avoid costly mistakes and keep your portfolio aligned with your financial goals.
To understand the Impact of Tariffs on Market Volatility: A Long-Term Investor’s Guide, reach out to us at info@waughmcdonald.co.ke
