The Trump administration’s recent tariff decisions put the stock market on a wild ride Monday, leaving investors bracing for more uncertainty. That day, President Donald Trump issued an order to slap a 25% tariff on Mexico and Canada and introduced a 10% duty on China. This move caused the Dow Jones Industrial Average to nosedive by over 660 points at its lowest, before it rapidly recovered to a mere 123-point loss after Trump announced a one-month postponement on the Mexico tariffs. In addition, an agreement with Canadian Prime Minister Justin Trudeau postponed those tariffs for at least 30 days.
Looking at the Dow’s performance over the last five trading days shows that stock volatility may be here to stay until there’s more clarity on these tariffs. Bank of America’s quant strategist Nigel Tupper pointed out in a note on Tuesday that markets might remain jumpy until the situation becomes clearer.
Running for the exits when the market gets rough can hurt long-term returns, as timing the market perfectly is nearly impossible. It’s crucial, however, to assess your portfolio and devise a plan to handle these sudden shifts. Joel Dickson, global head of advice methodology at Vanguard, emphasized this, stating, “It’s always a good time to review your portfolio, and that’s just part of regular maintenance.”
Statistics from Bank of America suggest that the market typically sees a correction—a 10% decline from its highs—about once a year. If such corrections are keeping you up at night, it may be a sign to reassess your risk tolerance, Dickson advises.
When the market takes a nosedive, it’s a prime opportunity to reassess your goals, time horizon, and comfort with market fluctuations. Dickson stresses that investors should focus on controllable factors. Key strategies include diversifying across asset classes, managing costs, and evaluating your risk appetite.
For those working with financial advisors, there are strategies available to benefit from market volatility. For example, tax loss harvesting can be a silver lining during a sell-off, helping investors use losses to offset taxable gains. Just remember to avoid the wash-sale rule, where the IRS disallows the loss if you repurchase a similar security within 30 days.
At the start of 2025, last year’s tech sector stars stumbled, with technology stocks dipping over 3% year-to-date. Investors looking to reduce volatility might consider dividend-paying stocks, which can offer income and stabilize portfolios during market turbulence. Marguerita Cheng, CEO of Blue Ocean Global Wealth, notes that dividends can provide income when the market is less favorable, and reinvesting them helps level out fluctuations.
To further diversify, Gargi Chaudhuri from BlackRock recommends sectors like financials and healthcare for steady earnings growth. Fixed income also presents an opportunity, with appealing yields available without delving into lower quality or longer durations.
For core fixed income, Chaudhuri’s team favors the 3 to 7-year section of the yield curve, balancing the need for income with a controlled interest rate risk. The iShares 3-7 Year Treasury Bond ETF (IEI) and the iShares Flexible Income Active ETF (BINC) are options here, each with attractive yields and manageable expense ratios.
While it’s not wise to abandon stocks entirely and retreat into cash, it’s beneficial to ensure you have the right amount set aside for emergencies—and for seizing investment opportunities during market dips. The Crane 100 Money Fund Index currently yields 4.19% annually, rewarding those who park their cash in money market funds. High-yield savings accounts offer similarly enticing rates.
Typically, financial advisors recommend maintaining an emergency fund covering three to six months of expenses, but some suggest extending that to 12 to 18 months. Despite slight drops in interest rates on high-yield savings, they’re still more favorable than previous years, Cheng points out. Having sufficient cash reserves for emergencies and opportunities is a strategy she consistently recommends.
