Recent news on tariffs has raised concerns about a possible trade war, resulting in a market pullback. While market swings are never pleasant, we believe it’s important to maintain perspective when navigating markets and trade wars, especially when it comes to your long-term financial goals.
Why are markets concerned about tariffs?
The current administration recently implemented new tariffs affecting trade with Canada, Mexico, and China, with more potential tariffs under consideration. While this has contributed to market uncertainty and a 5% - 10%+ pullback in the stock market, it's important to keep a few facts in mind.
● Historical Context: The U.S. has a history of using tariffs as policy tools, particularly to protect key industries and national interests. Previous trade tensions often resulted in eventual agreements.
● Economic Impact: While tariffs can increase some consumer and business costs, their actual economic impact has historically been less severe than initial market reactions suggest.
● Negotiating Strategy: Tariffs are frequently used as negotiating tools to achieve broader policy objectives, often leading to new trade agreements.
Why Portfolio Balance Matters Now
During periods of market volatility, holding different asset classes proves particularly valuable. While some market sectors face challenges, others have performed well. Bonds have provided positive returns as interest rates declined, helping to offset stock market fluctuations in balanced portfolios.
Some investors and economists have been worried about a recession for the past three years. Just a year ago, many believed an economic downturn would be imminent due to inflation. Despite these fears, the stock market has performed well over this period with the S&P 500 still up nearly 60% since the bottom in 2022, and 10% over the past year. It’s important to take forecasts with a grain of salt.
Historical Perspective on Market Pullbacks
Stock market dips of 1% or more are common events, averaging 31 occurrences annually during the last three decades. This year, we've already experienced 11 of these days. While these fluctuations feel stressful, they're simply a part of investing. History consistently rewards those who resist the urge to react to daily financial drama, instead allowing their investments to ride the market's long-term upward trajectory.
The key to successful investing isn’t to avoid declines but to take advantage of them by strategically rebalancing as appropriate to maintain alignment between a well-crafted financial plan, your goals, and your investment portfolios.
Clients of South Coast Planning & Wealth maintain personalized portfolios designed to weather various market conditions while pursuing their specific financial goals. Successful investing isn't about reacting to daily news or market movements. It's about maintaining a well-constructed portfolio aligned with your long-term objectives. This remains true despite ongoing tariff concerns that may impact the market in the coming weeks and months.
We continue to monitor developments closely and are here to discuss any questions you may have.
The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.
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