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Global stock markets have experienced a decline following President Donald Trump’s implementation of tariffs on a wide range of imports. This downturn has prompted many Americans to reassess their investment strategies, even as financial advisors encourage a steadfast approach during turbulent times.
According to Alight Solutions, which manages corporate 401(k) plans, the overall transactions in 401(k) accounts resulted in a modest fluctuation of only 0.10% last week. However, Alight’s research director Rob Austin highlighted that this number is noteworthy, as it is approximately four times the average for such transactions typically observed over a month.
During the week concluding on April 4, substantial outflows were noted, with 53% of the $140 million pulled from large-cap U.S. equities. In contrast, nearly the same percentage, around 52% or $138 million, was redirected into stable value funds. Total 401(k) balances reportedly dropped from $262 billion at the week’s start to $245 billion by Friday’s close, marking an average decline of 7%.
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As stated by the Investment Company Institute, approximately 70 million Americans are engaged in 401(k) plans. Fidelity Investments reported that the average 401(k) balance at the end of 2024 reached $131,700, suggesting that a 7% decrease could potentially translate to more than $9,000 in losses within just one week.
In light of these market fluctuations, financial advisors stress the importance of adhering to a comprehensive investment strategy that aligns with both financial and emotional risk tolerance. Here are three prudent strategies to consider.
Establish and Maintain an Investment Strategy
Establishing an investment policy statement can serve as a valuable guide for managing your portfolio and can prevent hastily made decisions influenced by current events.
“I believe in adhering to an investment policy statement that meets my needs while dismissing external noise,” shared Carolyn McClanahan, a certified financial planner and founder of Life Planning Partners in Jacksonville, Florida. “We encourage our clients to adopt a similar mindset.”
This kind of strategic focus can instill confidence that any modifications made will be in line with your investment objectives.
“It’s perfectly acceptable to make adjustments if they are warranted. However, this should be accompanied by an understanding of the potentially diminished benefits that may arise from such changes,” remarked CFP Lee Baker, the founder of Claris Financial Advisors in Atlanta. Financial experts warn against ignoring market conditions entirely.
Baker noted the existence of potential investment opportunities amidst market turbulence, emphasizing the need for both patience and diligent research.
Both McClanahan and Baker are members of the CNBC Financial Advisor Council.
Reassess Your Cash Reserves
For many investors, especially retirees or those nearing retirement, developing a cash reserve is becoming increasingly critical. Baker advised that these individuals might consider reducing their investment exposure and ensuring they have sufficient cash to cover a year’s worth of expenses.
Money market funds can play a strategic role in retirement and investment portfolios for those planning to retire soon or who are already retired. These investments offer high liquidity and can be utilized within 401(k) plans and other retirement accounts. Currently, top money market funds yield 4% or more, as cited by Bankrate.
Prioritize Fundamental Analysis
Uncertainties surrounding the economic repercussions of recent tariff introductions have left policymakers in a challenging position. The Federal Reserve may respond by lowering interest rates if economic growth slows, or raising them in an effort to combat inflation, though the appropriate course of action remains unclear.
“We will need to observe how the situation develops before making any adjustments,” advised Jerome Powell, Chairman of the Federal Reserve, during a recent conference. Financial advisors recommend concentrating on fundamental data during these uncertain times.
“In the event of a trade war leading to reduced economic growth, it’s critical to assess which asset classes would fare better in such an environment, as this approach differs greatly from shifting allocations based on policy changes,” commented CFP Ivory Johnson, founder of Delancey Wealth Management in Washington, D.C., who also sits on the CNBC FA Council. “Prioritize data over prevailing narratives.”
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