Market Moves, Tariffs, What Next?
Today’s market drop is a reminder of why we invest with purpose. Volatility is an expected part of the journey, and days like today reinforce the importance of understanding why we invest rather than reacting emotionally to short-term swings.
I wrote about this concept in a prior blog, Investment Returns vs. Investor Returns, highlighting how staying invested through market ups and downs is often the key to long-term success - not just chasing returns or reacting to daily headlines.
What’s Driving the Market Today?
Tariffs are back in focus, contributing to uncertainty. Here’s a quick refresher on what tariffs are and how they can impact the economy:
What Are Tariffs?
Tariffs are taxes on imported goods, often used to protect domestic industries, generate revenue, or influence trade policy.
Potential Economic Impact
Protection for Domestic Industries – Tariffs can support local businesses and encourage domestic production.
Higher Prices & Retaliation – Consumers may pay more, and trade partners may respond with their own tariffs, impacting exporters.
Historical Context – From the Smoot-Hawley Tariff Act (1930) worsening the Great Depression to the U.S.-China trade war (2018-Present) causing supply chain shifts, tariffs have long played a role in market volatility.
What This Means for Your Portfolio
Days like today highlight the importance of staying focused on your long-term plan. Your investment allocation is built for both the ups and the downs. While it can be tempting to react, remember:
Selling in response to volatility can lead to poor timing decisions. If your financial goals haven’t changed, your strategy likely shouldn’t either.
Having a coordinated tax strategy matters. Before selling, consider the tax implications - proactively working with your financial advisor and tax professional ensures smart, tax-efficient decisions.
Market declines often create opportunity. Certain sectors - like domestic manufacturing or companies adjusting supply chains - could present long-term investment potential.
We’ll be including a few charts that help illustrate the reality of market volatility and why successful investing isn’t about avoiding downturns but managing through them.
Let’s Review Your Portfolio
If you would like a complimentary review of your portfolio - including risk assessment, fee analysis, and any tax considerations - please reach out. We would be happy to include your accountant in a coordinated discussion where needed.
If you have any questions or want to discuss how today’s market movement relates to your financial plan, let’s set up a time to chat.
Asset class returns
On this page, we show our quilt chart, looking at the annual returns for a range of different asset classes across a 15-year time period. It has everything from stocks and bonds to commodities and cash. On the far left side of the chart, we show both the annualized return and annualized volatility over the last 15 years for each asset class. Cutting through the middle of the chart is a hypothetical diversified portfolio composed of different weights of these asset classes. Those specific weights are listed in the footnote.
Annual returns and intra-year declines
This chart shows intra-year S&P 500 declines (red dot) as well as the full year (gray bar). This chart makes it clear that double digit intra-year declines are typical, and that more often than not, the market still finishes in positive territory, encouraging investors to stay the course.
Diversification during growth and inflation shocks
This slide shows how stocks, bonds, and alternatives respond during growth and inflation shocks. Bonds can help protect a portfolio during growth shocks but are typically ineffective during inflation shocks. Equities underperform under both scenarios. On the other hand, alternatives, especially infrastructure and hedge funds, can still perform well during inflation shocks.
Time, diversification, and the volatility of returns
This chart shows historical returns by holding period for stocks, bonds and a 60/40 portfolio, rebalanced annually, over different time horizons. The bars show the highest and lowest returns experienced during each time periods (1-year, 5-year rolling, 10-year rolling and 20-year rolling). This page advocates for having a simple balanced portfolio and a long time horizon.