The past week saw major stock indices swing significantly. Following President Trump’s announcement of new global tariffs on April 2 markets experienced a steep decline, then the S&P recovered some of the losses after one of the largest single day rallies in market history following the announcement of a 90 day pause. With policy still in flux, the market continues to price new information in real-time. Many people are feeling whiplash from current headlines and anxiety about portfolio price swings.
There is a fundamental challenge during periods of market turbulence: we are invested for the long-term, but we live our lives in the short-term. We read headlines, take care of family responsibilities, and move about our day-to-day life in the context of the present. When problems arise, we are inclined to take quick action to resolve them. This is a natural characteristic of how our brains are hardwired. When it comes to successful long-term investing, that instinct to react quickly doesn’t always lead to higher returns, in fact, it often has the opposite effect.
History has repeatedly shown that sticking to a steady portfolio strategy is the surest path to financial security and flexibility. Of course, that doesn’t mean it is easy to remain focused on long-term growth while experiencing price declines and uncertainty in the present.
When In Doubt, Zoom Out
When we zoom out, it is easier to see that markets do not progress in a straight line, but they have consistently adapted and grown throughout history – including various periods of volatility, geopolitical conflict, and seemingly existential uncertainty. When looking backwards, it can be easy to downplay what these events felt like in the moment. It’s worth remembering that the current tariff uncertainty isn’t the first time investors have felt this way.
The chart below highlights some of these events and headlines over the past 50+ years:
Markets declined as an initial response to many of these events, but investors that stepped to the sideline or materially changed their allocations more often than not missed out on the recovery and saw lower long-term returns than if they had just stayed the course with their initial strategy. “Staying the course” doesn’t necessarily mean taking no action. Rather, it means that reacting out of concern that market prices will continue to decline in the short-term is rarely the best course of action. Well-laid plans still need to be periodically reviewed, and any adjustments should be tailored to the specific circumstances and needs in your financial life.
While we don’t know what the shape or timeline of the current market turbulence will ultimately be, when we review this same chart in the future, we expect that “Trump tariffs” may be added to the list, with the long-term trajectory of market growth and adaptation remaining intact.
The Perspective That Matters Most
History can provide context, but no historical period offers a perfect roadmap of what comes next in the current market. Tariff policy, consumer trends, technology, and the compounding scale of the global economy are constantly changing. A few years ago, the pandemic reminded us that there are risks that we aren’t even contemplating that could change the pattern of growth in unknowable ways. Markets declined significantly following the initial shutdowns, but companies and economies adapted rapidly and in innovative ways. Market prices ultimately recovered and pushed higher. Even though the exact shape and timeline of our current volatility are unknowable at this point, it will similarly be the adaptability of people and companies that will lead the way through this tariff turmoil.
Market gyrations during past downturns (most recently 2020 and 2022) also highlight the personalized nature of investing. Some of our clients were able to add money to their long-term portfolios, while others needed to withdraw cash for life events. Most clients rode through the storm (in conversation with us) because they continued to prioritize the needs of their own financial life, and didn’t make changes based on the market. For virtually all of our clients, life events are more meaningful metrics to guide financial decisions than GDP, trade deficits, or short-term equity market prices. Family, career, health, philanthropy – these are the true directional markers that should inform decision making.
We appreciate our clients’ ongoing trust in our team, and we welcome any conversations or check-in discussions that would be helpful during this time. Please do not hesitate to reach out to your North Berkeley advisory team.
