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We're barely into 2025, and the investment world is already on edge. Policy uncertainty and geopolitical drama from the new Trump administration aren't helping matters, according to Björn Ebert, Financial Services Leader at PwC Luxembourg

If you've been watching your investments lately, you've probably noticed some turbulence. Bond yields are climbing worldwide, a clear signal that investors are adjusting their expectations in response to ongoing global conflicts and sluggish economic growth.

You might hear the media throwing around the word "chaos" to describe what's happening. But there's a difference between chaos and pure disorder. Think of it like this: chaos has underlying patterns that can be analysed and understood, even if they're complex.

Since inflation hit double digits and actual warfare returned to Europe three years ago, business leaders have placed geopolitical tensions at the top of their worry list. For you as a young investor, this means regional conflicts and shifts in international trade need to be part of your investment calculus, not just occasional concerns.

The European Central Bank (ECB) isn't mincing words about financial stability risks. While inflation in the euro area is getting closer to the target 2%, economic growth prospects remain weak.

France and Germany, which together make up 40% of the EU's GDP are both facing serious challenges:

• France is dealing with rising borrowing costs and needs to tighten its belt
• Germany is battling increased competition from China and potential trade conflicts with the US

The rest of the eurozone isn't faring much better. Although debt-to-GDP ratios have improved since the pandemic, high debt levels combined with rising servicing costs are concerning. As older, cheaper debt gets refinanced at today's higher rates, questions arise about debt sustainability, especially in countries with large deficits and limited growth potential.

Some analysts believe that economic fallout from the Ukraine conflict is fueling the rise of right-wing parties across Europe. The euro area, once a beacon of stability for investors, now presents a complex landscape of elevated risks and underwhelming returns.

Solutions vary widely: JP Morgan expects interest rate cuts, Mario Draghi advocates for balancing innovation with regulation, and some radical voices even suggest abandoning the euro altogether. Whatever approach prevails, you'll want to keep a close eye on these developments, especially as business and consumer confidence in Europe continues to decline.

If you invested in oil last fall, you might have been caught in a painful squeeze. Market consensus expected oil prices to decline, leading many investors to short the commodity. But when Israel launched long-range missiles against Iran in late 2024, oil prices spiked sharply. The situation was further amplified by Trump's re-election, breaking those short positions and causing significant losses for many investors.

According to the Economics Observatory, ongoing tensions in the Middle East could continue to disrupt oil production and supply chains, pushing energy prices higher. For your portfolio, this could mean:

• Higher inflation across all sectors
• Reduced global trade
• Slower economic growth, especially in countries with strong ties to the region

The combination of rising energy costs and shipping disruptions puts additional pressure on businesses and consumers, affecting confidence and investment. If conflicts in the region escalate further, these factors—along with potential refugee crises and increased defence spending—could result in prolonged sluggish growth worldwide.

Many asset managers have been calling our current era the "Roaring 20s," drawing parallels to the 1920s with its strong economic growth and technological innovation. As F. Scott Fitzgerald put it: "It was an age of miracles, it was an age of art, it was an age of excess and it was an age of satire."

But here's your history reminder: the 1920s also featured significant economic imbalances, completely unregulated financial markets, and growing political tensions. All of this eventually led to the 1929 Wall Street crash, the Great Depression, and the rise of authoritarian regimes.

The parallels to today are hard to ignore. We're living with geopolitical tensions, active conflicts, and shifting global alliances. At the same time, we're experiencing an AI revolution that promises to transform entire industries and economies. This combination of opportunity and risk places us at the crossroads of growth potential and uncertainty—just like investors a century ago

For investors, embracing uncertainty as a constant is key. Recognise that risks and opportunities often come from the same source: change. The most successful investors will be those who:

1. Build comprehensive risk frameworks into their investment strategy
2. Develop adaptive approaches that can pivot when conditions change
3. Maintain a long-term vision despite short-term volatility

Discretionary Fund Managers (DFM's) are perfectly poised, specialise and excel in these area to help investors.

Use the button below to learn more about how a DFM could help you achieve performance within the current investment landscape.