We understand if you are concerned following the market’s drop over the last few days. It’s human nature to feel losses more strongly than gains.1 Rest assured, we design investment portfolios for moments like these. Here are some of the ways we manage risk and keep you on track to meeting your goals:
Setting Realistic Risk Targets: Your portfolio should be managed to your individual preference for risk. Portfolios that are moderate or conservative typically experience only a fraction of the stock market’s movement. So, even if the media is painting a bleak picture, remember that your personal performance may not be representative of what you’re seeing in the news. When we try to determine your comfort level with risk, we aim for a level of risk where you won’t feel compelled to “sell to cash” in a down market. Getting out of the market after a drop locks in those losses and hinders your portfolio’s ability to recover. Market declines are inevitable, so you should only be taking risks that you can tolerate and have the time horizon to ride out.
Disciplined rebalancing: As your individual holdings grow at their own paces, portfolios can become out of balance. By rebalancing, we “sell high” and “buy low” to return the portfolio to its long-term target. In a declining market such as the one we’re in, that means selling more stable investments like bonds, value stocks, or possibly buffered equities, and buying equities or growth stocks that are at much more reasonable values than they’ve been in the recent past.
Diversification: Another investing adage is to “not have all of your eggs in one basket”. Diversified portfolios typically consist of multiple asset classes like stocks and bonds and a broad mix within each asset class. For example, the US Aggregate Bond Market is actually up 3.69% this year.2 And more stable sectors like consumer staples, utilities, and health care are down less than 2.3% for the year despite the 19%+ losses from the technology and consumer discretionary sectors.2 Owning different types of investments that have differing cycles of highs and lows can reduce your portfolio’s volatility and lead to more consistent returns.
The stock market
The stock market advanced 4.64% to begin 2025 and reached its high on February 19th. Those gains were erased by the end of the first quarter as the stock market finished down 4.27%. Significant losses on April 3rd and 4th, however, now place the year-to-date return at -13.42%, which is 17.26% off the market’s high water mark.2
The bond market
The bond market finished the first quarter up 2.78%. For the year to date, the gain is 3.69%. This has helped to offset some of the stock market losses for investors that invest in both asset classes. The Federal Reserve, not knowing how some of the new administration’s policies could impact inflation, is content waiting to see how the data looks before deciding on future cuts to the Federal Funds Rate.
Tariffs
Tariffs are a form of tax levied by a government on imported goods. Tariffs can be used to encourage local production and consumption, reduce reliance on foreign goods, and can also generate additional revenue. On April 2nd, the U.S. announced widespread tariffs on our trading partners that were much higher than expected.3 This could be a negotiating tactic that could lead to more favorable trade agreements or it could lead to retaliatory tariffs that escalate into a full blown global trade war and potentially a recession. The recent sell off in the stock market seems to be directly related to the tariff announcement as investors attempt to price in potential impacts like slower growth and chances for increased inflation.
What can you do?
- Remain calm: Market drops are inevitable and could recover just as quickly as they declined. Stay invested and focused on the long term by remembering your portfolio is invested for your personal preference for risk, diversified across and within asset classes, and routinely rebalanced.
- Be an informed consumer: Prices for everyday goods and big ticket items could be changing considerably. Look for substitute products and consider delaying large purchases.
- Put more money to work: If you have money on the sidelines, you can now put it to work at much more favorable valuations.
- Consider Roth conversions: Converting a portion of your IRA assets to a Roth IRA could allow the gains following a recovery to be free from income tax. The conversion itself will be taxable, but the taxes may be lower depending on your tax bracket. Feel free to reach out if you would like to learn if Roth conversions are appropriate for your situation.
- Talk to your advisor: Your advisor is here to help you just as we’ve done for hundreds of clients across many different market cycles. We’re here to guide you through the difficult times and make sure you’re in the best position to reach your goals.
Sources & Disclosures
1. https://www.investopedia.com/terms/l/loss-psychology.asp
2. Data from Kwanti.com based on the S&P 500 Total Return index
3. https://www.whitehouse.gov/fact-sheets/2025/04/fact-sheet-president-donald-j-trump-declares-national-emergency-to-increase-our-competitive-edge-protect-our-sovereignty-and-strengthen-our-national-and-economic-security/