Tariffs
This year was already off to a rocky start in the US equity markets, as I point out in my first quarter market commentary. Then came “Liberation Day” on April 2nd, when President Trump announced significant tariffs on imports from countries all over the world. I’m not going to get into the weeds on what tariffs are or why most economists agree these are going to be harmful to our economy. I wrote about tariffs back in 2018, and I highly recommend you read Cullen Roche’s article on this, which gives a great “Tariffs 101” overview.
Regardless of your opinion on the President’s new tariff policy, it’s pretty apparent investors didn’t like it. The S&P 500 suffered its 5th biggest 2-day decline since 1950 in the two trading days after the announcement. The losses weren’t isolated to large-cap US stocks, as nearly all international stock markets also declined. The last time we had volatility like this in the markets was March 2020, at the start of the COVID-19 pandemic.
Times like these can test even the most risk-averse investors. Fear and panic can take hold of us when things look so uncertain. If you are feeling this way, think back to March 2020 and remember how you felt then. I know I was scared. The world was shutting down, and people were dying. It was a scary time. But I knew that being scared was different from living in fear. I quoted Ryan Holiday, and that quote seems relevant again today:
A scare is a temporary rush of a feeling. Being afraid is an ongoing process. Fear is a state of being.
- Ryan Holiday, The Important Thing Is to Not Be Afraid
Now you might be thinking, this time is different! Of course, it is different, no two crises are ever exactly the same. Yet, throughout our history, we have made it through some very significant crises. We have survived world wars, terrorist attacks, and pandemics. I can guarantee you that investors thought “this time is different” during every one of those events and hundreds of other events in between.
The world is not going to end because of this tariff war, but there could be some difficult times ahead of us. We are here to help you navigate through those difficult times. In March 2020, I wrote an article about keeping calm in turbulent times, and most of the advice in that article is just as true today as it was then. The best advice we can provide right now is:
- Review your asset allocation to make sure it aligns with your goals. Don’t make changes to your portfolio because of market moves, only rebalance if you need to get back in line with your targets.
- Make sure you have enough cash/short-term assets to cover your living expenses through a downturn. We generally recommend keeping 2-3 years of cash flow needs as a reserve.
- Consider tax planning strategies if stocks continue to fall. There could be opportunities to harvest losses for tax purposes or to do Roth conversions when market values are depressed.
- Turn off the TV and stop watching the daily market moves. Go outside and take a walk. Spend time with family and friends, and don’t talk about politics or the markets. I promise this will help more than anything else!
If you are still feeling anxious or nervous about the markets, give us a call and talk to us. We understand the emotions you are feeling right now because we feel them, too. Talking through those emotions will help, and that’s what we are here for.
-Chris Benson, CPA, PFS
The views expressed represent the opinions of L.K. Benson & Company and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person.