MASSY WILLIAMS: Joe, on 2 April, we saw a tariff announcement, and the market reacted immediately to it. Can you talk to us a little bit about how this announcement, and probably even what we're seeing on the global trade market right now, is influencing the level of ambiguity and uncertainty in the market?

JOE DAVIS: Yes. Well, again, it's been a lot for all of us to absorb and digest, Massy. What we are seeing is a reaction to one of the larger trade shocks we could have seen in over almost a century. So just even saying that is pretty profound.

And then there's the uncertainty itself of, is this the end and then we'll see renegotiation – which is what I think ultimately we will see – and the length of time that takes. And so all of those are a tough mix to take—uncertainty, drags on growth, boosts to inflation. And then this went into a market—the US, in particular—that was somewhat expensive, for sure. And you put all those four things together, and I think that's why we're seeing the sort of market fallout that we're seeing.

MASSY WILLIAMS: And in this heightened volatility environment, we know that diversification, whether it's across region, across sector or across asset classes, is really crucial to investment success. Can you talk to us about why diversification actually matters when it comes to managing a downside risk?

JOE DAVIS: Yeah, and I think diversification—I think you hit it very well, Massy—diversification does not mean one does not experience losses. It means that you try to moderate those losses. And so, effectively, diversification, the power of that philosophy, is that you don't have concentrated positions in one company, one sector.

We were cautioning investors for two years now on very expensive technology stocks(1). We're not picking on technology companies. They were just very expensive relative to their fundamentals(2). You're not exposed to just one part of the bond market. And most importantly, you don't have all your eggs in either just stocks or just fixed income(3). More often than not, it can be appropriate to have a mix of both. And so those dynamics mean that you won't get, you may not get, the very best possible outcome, the single best stock. But you also are not getting the worst possible outcome of whatever sector or country experiences that. And that's the power. It doesn't mean that one's portfolio is not going to experience losses for a period of time. And that's, unfortunately, the environment we're in right now.

MASSY WILLIAMS: Thank you, Joe. Very important and great insight that you shared with all of us today. To you, our long-term investors, although investing can seem perplexing and complex, especially in times of uncertainty and heightened volatility, success is largely within your control. It’s important to not let your risk tolerance and time horizon(4) get out of sync with your portfolio because of the headlines. So, at Vanguard, we caution you against making tactical short-term changes and we suggest that you focus on four investment principles. One, make sure that your goals are still appropriate based on your unique circumstances. You just heard Joe say that. Two, keep your balance and diversified portfolio across and within asset classes as well as across regions and sectors. Three, minimise costs. And finally, maintain a long-term perspective and discipline. These four principles are designed to help investors stay on track to achieve your investment success. And as always, we are here to serve and support you, so please, do not hesitate to reach out to us. Thank you.

(1) Stocks is another word for shares.

(2) A company’s fundamentals include things like its earnings, cashflow and growth potential. 

(3) Fixed income in this context means bonds.

(4) Time horizon is the length of time you are investing for.