President Donald Trump’s sweeping tariffs have plunged markets down by nearly 6%, signifying it as the worst market period since 2022.
By Friday morning, The Dow Jones Industrial Average fell 1,600 points, or almost 4%. The S&P 500 was down by 4.8%, and the Nasdaq had fallen close to 6%.
This is despite the president waving off concerns that his tariffs dropped the U.S. into financial turmoil, noting zero trepidation regarding his announcements. “I haven’t checked my 401(k),” he replied to reporters when questioned about markets.
Trump’s tariffs include a standard 10% tariff on all imports and an additional 25% tariff on imported automobiles, as well as tariffs of 20% on the European Union, 24% on Japan, 25% on South Korea, 32% on Taiwan, 34% on China, 37% on Thailand and Bangladesh, and 46% on Vietnam. Cambodia, who largely relies on the U.S. to support its garment industry, was hit with the highest tariffs at 48%.
The tariffs come as Americans are already grappling with soaring inflation and economic volatility. A study from Allianz Life in March showed that more than 7 in 10 Americans are expecting inflation to worsen over the next 12 months, and three in four worry that new tariffs will surge their cost-of-living expenses.
Others voiced concerns over the lasting influences of tariffs to their retirement portfolio, but depending on their age, some may not need to stress, experts say. For example, younger clients with a higher risk tolerance in their retirement account could look at this event as an opportunity to continue investing while benefiting from lower prices—so long as they have an emergency fund stowed away, said Amy Arnott, a portfolio strategist for Morningstar, to 401(k) Specialist.
“As long as they have an emergency cash cushion set aside plus enough safer assets to cover any upcoming goals such as a planned home purchase, most young people can afford to keep their portfolios more heavily tilted toward stocks, particularly if they’re saving for a retirement date that’s still decades down the road,” explained Arnott.
Andrew Mescon, CEO of South Carolina registered investment advisor (RIA) Ballast Rock Private Wealth, said that younger participants with longer time horizons, who have enough available liquidity and cash flow, could potentially increase their retirement contributions during this time.
“Rather than trying to change your investment strategy, which we’re not recommending you do, assuming you’re in the correct asset allocation strategy for your risk tolerance and time horizon, by increasing your contributions slightly, you’re able to take advantage of some long-term opportunities that circumstances like today create,” Mescon told to 401(k) Specialist.
In events of emergencies or market downturns, Arnott advises retirement clients to build up a cash cushion large enough to cover a minimum of one- or two-years’ worth of planned portfolio withdrawals, as well as intermediate-term bond holdings to cover another five to eight years’ worth of planned withdrawals. The remainder of the portfolio can remain in stocks, Arnott added, and ideally in well-diversified, low-cost vehicles like index funds.
Near-retiree solutions
The prevalence of emergency savings accounts is especially true for near retirees who plan on leaving the workforce within the next three to five years.
For these clients, both Arnott and Mescon recommend an appropriate asset mix that pulls away from equities and leans into a more balanced portfolio.
In fact, near retirees with a shorter time horizon until retirement shouldn’t be heavily invested into equities at all, Mescon said. If they are, and currently see a hit to their retirement nest egg due to recent events, they should be wary of selling all and moving to cash in the event the market rebounds.
Instead, three to five years out from retirement is a sufficient amount of time to recover any potential losses, Mescon commented.
Inflation protection is another important consideration for near retirees, said Arnott. These clients could consider allocating part of their bond portfolios to treasury inflation-protected securities (TIPS), a low-risk investment that offsets the impacts of inflation by adjusting principal and interest payments.
“People who are more risk averse and not comfortable with market volatility may want to consider building a ladder of TIPS with staggered maturity dates to cover each year’s planned portfolio withdrawals during retirement,” Arnott remarked.
Shift to alternatives?
Mescon points to a possible, gradual shift in alternative investments, as the retirement industry sees rising interest among investors who want to hedge against inflation.
While Trump’s tariffs aren’t likely to impact alternatives like Bitcoin, current uncertainty in the globalized market could lead to some investors backing out from buying the coin. Other cryptocurrencies, like Ethereum, are currently down 20% since February due to investor insecurity.
Still, Mescon sees a potential for alternatives in the retirement market, and especially among retirement plans who have a 3(38) fiduciary advisor monitoring investments and making trades for clients, as opposed to a 3(21) fiduciary who only provides advisement.
“The data historically does suggest that the top quartile of diversified private equity managers have managed to outperform public markets annually, but more so have managed to do so with half to one-third of the volatility,” he said.
In volatile times, Mescon sees an opportunity for near retirees to invest in private credit strategies. “When you have high interest rates, you tend to have a bigger gap between buyers and sellers and so less deals aren’t happening,” he added. Right now, ironically, private credit markets are providing an adequate balance of yield and safety on a risk adjusted basis that could be beneficial to certain older investors.”
SEE ALSO:
DC Participants Interested, But Skeptical, in Alternative Investments
Inflation, Tariffs Increasingly Worry Americans in 2025, New Study Finds
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with nearly a decade of experience and a passion for telling stories and reporting news. She is originally from Queens, New York, but now resides in Denver, Colorado.
