It’s ok to say it. “Oy, what a week!” While nobody was surprised that President Trump announced new tariffs on Wednesday, I’m confident in saying that everyone was surprised by their scope, scale, and methodology. We’ve written before that markets don’t like surprises or uncertainty, and last week’s tariffs were no exception. Thursday and Friday’s market selloff was the largest two-day decline in five years (since COVID), and by one measure, record-breaking. As I write this on Sunday evening, the futures market is guessing that Monday might have more in store. Longtime clients have heard us talk about the “unknown unknowns” that nobody would reasonably predict, and the heaviest tariffs in 100 years certainly count! But we hope you’ll take a moment to breathe, allow us to encourage you, and share our thoughts for the strategy ahead.
First, a reminder: a temporary decline in your portfolio balance does not mean that something is wrong with your portfolio. Read that again if you need to. Every client portfolio is always capable of decline, but every client portfolio has a risk level that is suitable and appropriate for your age and situation, reviewed every time we meet with you. Retired? That’s why your portfolio has lower risk than it would have 20 years ago. Not adding money anymore? That’s why you own bonds. We’re not making light of these concerns, we just want to reaffirm the answer that is in a balanced portfolio and bonds specifically.
Second, some good news: Generally speaking, we’ve been very pleased with how well client portfolios have been playing defense lately! Since the S&P 500’s peak on February 19th, bonds are up (UP!), international investments have fared well, and low-correlation asset classes are doing their job. Put another way, diversification is working. Even multi-year returns can look poor in the middle of a downturn, so we recommend caution in leaning on them too heavily in this environment.
Third…what’s next? In our last email, we shared that we feel the least likely outcome is that these tariffs persist. We still feel that way, for several reasons (for one, the phrase “political suicide” comes to mind). But even if the tariffs continue, we can already tell you the strategy. With every stock market selloff in history, there comes a point where buying opportunities emerge, where selling bonds (which are up, UP!) makes sense so we can buy stock in great companies on the cheap. In our opinion, we may not be quite there yet, but we believe that point may be closer than it feels.
As always, our approach is not a cannonball into the stock market, but rather a gradual walk in, flexible as new news and new data emerge. Every major market decline feels different, new, and scary, and stocks always move fast in anticipation of bad news. We know the headlines may be frustrating or fearful, but we want to encourage you – we’re not panicking, and we don’t think you should be either.
As always, if you want to review your portfolio or discuss changes, please reach out. We’re on your team, and here to help. We are honored to serve you and excited to speak with you again soon.
All investing involves risk including loss of principal. No strategy assures success or protects against loss. 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.