- The US and China have announced a 90-day pause on tariffs imposed this year, reducing the tariff on Chinese goods imported into the US from 145% to 30%
- Historical data shows that 78% of the stock market’s best-performing days occurred either during a bear market or within the first two months of a new bull market1
- The US large cap index has recovered to positive territory on a year-to-date basis (at the time of writing) 2
The US’s global trade policy and rhetoric has dominated headlines, and indeed our weekly investment articles this year. The situation is everchanging, for example this week’s major de-escalation in the trade war between China and the US, reducing their tariff rates back to 30% in the US and 10% in China. However, this week we reflect on two of our central pillars in investing that add dynamic and defensiveness in the long term: time in the market rather than timing the market and the importance of diversification.
Diversification
Of course, recent volatility hasn’t happened in a vacuum, but rather at a time when the US looked to be economically robust and their equity valuations were stretched beyond their long-term average. In times of stress, the more expensive areas of the market often see share prices contract most meaningfully, while the relatively cheaper areas of the market draw down less. This has held true with the expensive US market underperforming other developed markets in the first four months of 2025, and other regions that we allocate to, for example the UK and Europe offering support to portfolios.
Global forward price to earnings ratios
Source: JP Morgan, 2025
Nobel Laureate Harry Markowitz famously called diversification “the only true free lunch in investing” and we apply this principal on a multi-factor basis, balancing asset class, regional, stylistic and currency exposure to ensure that portfolios are not unduly tilted toward any one factor at a time, since there is little persistence in performance as the investing environment changes.
Time, not timing
While we expect volatility to remain heightened given the speed of news flow, we have avoided making any knee jerk reactions within portfolios as our view remains that timing the market is notoriously difficult and time in the market is a rather more reliable way of preserving and growing capital over time. Indeed, research shows that the market’s worst and best days tend to be clustered, and the long-term impact of missing just 10 of the best days of the past 30 years would have reduced your return by 50%.
The example below from RBC Global Asset Management shows four investor outcomes when investing identical amounts ($3,000 per year to their diversified portfolio for 20 years, totalling $60,000) but with different timing. This helps us visualise the superior overall return above cash that investing within financial markets can achieve while protecting capital from inflation erosion but also how similar the return would have been should you have been fortunate enough to time the market perfectly, invest on a regular monthly basis or only invest on the worst performing days.
Investor 1: was a fortunate market timer, placing their funds into the market every year at the lowest point.
Investor 2: used dollar-cost averaging to invest their annual amount over 12 equal monthly contributions.
Investor 3: had the worst timing imaginable, invested their funds every year at the market’s highest point.
Investor 4: left their money in interest-earning cash investments every year and never entered the markets.
Source: RBS Global Asset Management, 2025.
For the period of January 1, 2005 to December 31, 2024. Assumes each investor contributes an annual investment of $3000 to a hypothetical balanced portfolio based on GAM’s strategic asset mix for balanced global investors, rebalanced monthly as follows: 38% Fixed income: FTSE Canada Universe, 2% Cash: FTSE Canada 30-day T-bill, 15% Cdn Equity: S&P/TSX Composite TR, 25% US Equity: S&P 500 TR CAD, 15% Int’l Equity: MSCI EAFE GR CAD, 5% EM Equity: MSCI EM GR CAD. An investment cannot be made directly into an index. The graph does not reflect transaction costs, investment management fees or taxes. If such costs and fees were reflected, returns would be lower. Past performance is not a guarantee of future results.
Source: LSEG DataStream, data as at 15/05/2025
The value of your investments can go down as well as up, so you could get back less than you invested. Past performance is not a guide to future performance.
Additional sources:
1 Hartford Funds, 2025
2 LSEG DataStream, 2025