Financial markets have suddenly hit a rough patch. There was a peak in share prices in late January and values have been volatile since. The last couple of weeks have seen a sharp fall. Of course, this volatility began when Donald Trump took office as US President.

His governance style is that of a schoolyard bully. He demanded protection money from the Ukraine President by insisting he hand over access to the country’s mineral wealth in exchange for possible protection from that other bully, the Russian President.

Now President Trump is bullying other countries, including close neighbours and allies, by threatening tariffs on goods imported from them. Some have been able to reduce the impact by agreeing to his other demands. Few could have predicted that such events would play out in international relations. 

In light of the uncertainty and volatility in financial markets, some investors have asked if they should sell part or all of their investments and move to cash. Those with diversified portfolios have the first line of defence in place.

Reducing exposure to share markets may be wise for some, particularly those with shorter investment timeframes. In the long-term portfolios planned by professional advisers will survive and do well, but there will be volatility near term. 

Large exposures to overseas shares are more at risk. However there are different management styles. Some fund managers adopt a ‘growth’ strategy, aiming to pick winners and chase opportunities. They may have a large exposure to high-priced US technology stocks for example, so are more vulnerable.

Other managers use a ‘value’ approach, investing only in proven companies with low debt levels and a long history of profits and healthy dividends. Funds run by value managers will be less affected by market volatility. 

Another sector that should be less affected is property investments in Australia. These could be stock market listed property companies, direct commercial buildings, or residential properties. The imposition of tariffs on Australian goods should have little effect on their values.

Infrastructure investments such as toll roads, pipelines, and rail tracks should also be less affected by volatility. They usually pay relatively high dividends giving them enduring appeal.

Switching to more defensive investments or cash appeals. However, doing so creates another challenge – choosing when to buy back in. It is very easy to wait too long and miss the start of the recovery, only rebuying when it is well advanced. Long-term investors may be better to retain what they have.