1. Maintain emotional discipline

Successful investors understand that managing your emotional response to market volatility is just as important as managing your portfolio. It is important to recognise the difference between financial risk tolerance and emotional risk tolerance, and resist panic selling during market downturns.

While financial risk tolerance refers to your objective ability to withstand market fluctuations based on factors like time horizon, income stability, and overall financial position, emotional risk tolerance concerns your psychological response to seeing your investments lose value. Such times will call for both, and it is crucial to remain level-headed even when your investments show a paper loss.

2. Diversification as defence

Diversifying investments across different asset classes helps insulate your portfolio from significant losses when specific segments of the market decline. Effective diversification ensures that your investments react differently to the same economic conditions, providing a natural buffer against volatility.

Take time to reassess your current allocation across stocks, bonds, and other assets. Given the rising risks to growth in the current environment, consider reducing exposure to cyclical sectors like technology, which tend to be more volatile during economic slowdowns. Similarly, it is prudent to minimise holdings in high-risk bonds that could face liquidity challenges during market stress.

“The key message that we have always been emphasising is to maintain a diversified portfolio and not put all your eggs in one basket,” said Mr Eddy Loh, Chief Investment Officer of Maybank Group Wealth Management in a CNA podcast as he discussed investments in the midst of Trump’s tariffs.

3. Identify strategic opportunities

Beyond the short term, a sell-down in the market could present opportunities to invest at more favourable valuations, said Mr Loh. Market sell-offs, while uncomfortable, often create attractive entry points for long-term investors.

Focus your research on companies with strong balance sheets, characterised by lower debt levels and healthy cash flows. These businesses typically have the financial flexibility to weather economic storms and potentially emerge stronger than their competitors. Their solid financial foundation provides a buffer to adapt to changing market conditions and continue operations even in a downturn.

Another move is to add defensive sectors like healthcare and consumer staples to your portfolio. These industries benefit from relatively inelastic demand as their products remain necessities regardless of economic conditions. Hence, such sectors may demonstrate greater resilience during economic contractions and can help stabilise your portfolio when growth stocks struggle.

In today’s economic environment, measured responses are key. Tariff-related uncertainty will likely persist, but disciplined investors can stay the course and navigate these challenges without succumbing to emotional impulses.

“Maybe this is the time to really build up the resilience of your portfolio, then you can sleep better at night amidst all these market volatilities,” said Mr Loh.