Market downturns, whether due to economic shifts or geopolitical events like
tariff announcements, are a natural part of investing. How you respond to
these declines can make a significant difference in your long-term success.
Emotional decisions, driven by fear or greed, can derail your financial goals.
Instead, adopting a disciplined, research-driven approach is key to
weathering turbulent times. Here’s how to stay on track when faced with
market volatility, such as recent declines linked to President Trump’s tariff
policies.
1. Understand Market Declines are Inevitable
Stock market dips—whether corrections (10% drop) or bear markets (20% or
more)—are inevitable but temporary. Historically, these declines have been
followed by recoveries. The S&P 500, for example, has experienced these
downturns regularly, each time bouncing back. Remember, market declines
don’t last forever. Understanding this helps you avoid knee-jerk reactions
when the market takes a hit.
2. Focus on Time in the Market, Not Timing the Market
It’s tempting to predict short-term market movements, but trying to time the
market is risky. Missing just a few of the best market days can significantly
reduce your returns. For instance, a $1,000 investment in the S&P 500 from
2015 to 2024 would have grown to $2,869 if you stayed invested. However,
missing the 10 best days would have reduced your returns by 45%. Staying
invested overtime, rather than trying to time market ups and downs, is key.
3. Avoid Emotional Investing
Emotions like fear and greed can lead to irrational decisions. Nobel Prize-
winning psychologist Daniel Kahneman’s research shows that people fear
losses more than they enjoy gains, making emotional investing dangerous.
During times of uncertainty—like the current tariff-induced volatility—
recognizing your emotional biases and sticking to your investment plan can
help you avoid costly mistakes.
4. Create a Plan and Stick to It
A well-thought-out investment strategy that aligns with your financial goals
and risk tolerance is crucial, especially when markets are volatile. Strategies
like dollar-cost averaging—investing a fixed amount at regular intervals
regardless of market conditions—can help smooth out fluctuations and
enable you to buy at lower prices during market dips.
5. Diversify Your Portfolio
A diversified portfolio, spreading investments across different asset classes,
can help reduce risk. While diversification won’t eliminate losses, it can
buffer the impact of market volatility, preventing your portfolio from swinging
too wildly when stocks take a hit. This is especially important when facing
heightened uncertainty, such as the potential for a trade war and its
economic consequences.
6. Balance with Fixed Income
In times of market stress, bonds can serve as a stabilizing force in your
portfolio. As U.S. stocks have declined this year amid tariff fears, bonds have
provided a much-needed cushion. The Bloomberg U.S. Aggregate Index has
gained 3.7%, offering a buffer against equity volatility. Bond yields have also
dipped, signaling that interest rates may fall if the economy weakens—an
important factor to consider in your portfolio balancing.
7. Think Long-Term
Short-term market fluctuations, like those triggered by tariffs or other events,
can be unsettling, but successful investing is about long-term thinking.
Historically, the stock market rewards patient investors. Even if the current
environment is turbulent, staying invested and focusing on the bigger picture
is crucial for success.
8. Reassess Your Portfolio Amid Global Shifts
Tariffs have created not only domestic volatility but also shifts in global
markets. The U.S. dollar has weakened, and countries like Germany are
ramping up fiscal spending to counteract the economic effects. As global
trade dynamics evolve, it’s important to reassess your portfolio to ensure it’s
balanced and diversified to handle these changes.
The Bottom Line: Stay Disciplined and Diversified
While market declines are inevitable, especially during times of heightened
political or economic uncertainty, staying disciplined is the best way to
navigate these challenges. By avoiding emotional reactions, sticking to your
investment plan, diversifying your portfolio, and balancing with defensive
sectors and bonds, you can weather the storm and come out ahead. As the
recent volatility shows, a cautious, long-term, diversified approach is
essential to successfully managing market declines, whether driven by tariffs
or other factors.
In these uncertain times, it’s more important than ever to stay focused on
your goals and adjust your strategy as necessary. Smart investing is about
consistency, research, and maintaining a steady hand in the face of market
storms.
References
Trump Tariffs Roil Markets. What’s Next?
Spence, D. R., Buchbinder, C., & Cormack, A. A. (2025, April 7). Capital
Group. Retrieved from https://www.capitalgroup.com
How to Handle Market Declines: Smart Investing Strategies
(2025, April). Capital Group. Retrieved from
https://www.capitalgroup.com
This research material has been prepared by LPL Financial
The opinions voiced in this material are for general information only
and are not intended to provide specific advice or recommendations
for any individual. To determine which investment(s) maybe
appropriate for you, consult your financial advisor prior to investing.
All performance referenced is historical and is no guarantee of
future results. All indices are unmanaged and may not be invested
into directly.
There is no guarantee that a diversified portfolio will enhance overall
returns or outperform a non-diversified portfolio. Diversification
does not protect against market risk.
Bonds are subject to market and interest rate risk if sold prior to
maturity. Bond values will decline as interest rates rise and bonds
are subject to availability and change in price.
The S&P 500 is a stock market index tracking the stock performance
of 500 of the largest companies listed on stock exchanges in the
United States. Indexes are unmanaged and cannot be invested in
directly.