While the market may be down, Google searches for "tariffs" are hitting record highs.

Potential economic downturns and trade tariffs create volatility, but strategic investing can protect and grow wealth. Here's a guide to navigating the current climate while managing your money.

Investing Amid Tariff Tensions

1. Focus on High-Quality Companies. Stick with businesses that have strong balance sheets, consistent cash flow, and durable competitive advantages. These companies tend to weather downturns better and rebound more quickly.

Look for: blue-chip stocks, low debt-to-equity ratios, and essential goods/services.

2. Prioritize Defensive Sectors. Some sectors are less sensitive to economic cycles—like healthcare, utilities, and consumer staples. These tend to perform more steadily when the broader economy slows. Areas you may consider as we move forward:

• Domestic Manufacturing: U.S. industrial stocks may benefit as tariffs raise import costs.
• Infrastructure & Logistics: Increased domestic production may fuel demand for transport and construction. 
• Commodities: Energy sectors could hedge against tariff-induced inflation. (Oil surged during 1973 OPEC crisis. The average world price of crude petroleum rose by 261%, from $3.10 per barrel to $11.20, between 1973 and 1974).
• Domestic Consumer Goods: Retailers focusing on locally sourced products may gain an edge, but only if consumers continue to buy what they're selling... 
• Defensive Stocks: Consumer staples, healthcare, and utilities tend to remain stable. (E.g., 2008 Financial Crisis saw consumer staples outperform more volatile sectors. These are essential goods like food, beverages, and household items that people continue to buy regardless of economic conditions. During the 2008 Financial Crisis, companies like Procter & Gamble and Coca-Cola remained relatively stable because people still needed basic necessities. People require medical care, prescription drugs, health services, and water, gas, electricity).
• Dividend Stocks: Reliable companies with strong dividend histories continue to provide passive income. (E.g., Dividend Aristocrats maintained payouts during the Dot-Com Bubble).
• U.S. Treasuries offer some stability. (U.S. bonds gained value during the Great Depression).
• REITs: Healthcare and essential real estate REITs rebounded post-2008 due to demand for housing and medical facilities.

Think: people still need medicine, electricity, and groceries—even in a recession.

3. Diversify, Diversify, Diversify. Diversify thoughtfully to manage risk. Spreading your investments across different asset classes—such as stocks, bonds, and real estate—as well as across various industries and regions, helps cushion against market volatility. Low-cost index funds and ETFs can offer convenient, built-in diversification, but it’s important to remember: not all ETFs are created equal. Just because it’s labeled an ETF doesn’t mean it aligns with your goals or risk tolerance. With countless investment options out there, navigating them can be overwhelming. If investing isn’t your strength—or simply not the best use of your time—it’s absolutely OKAY and recommended to consult a financial professional who can help craft a strategy tailored to your needs.

4. Keep a Long-Term Perspective. Market downturns can tempt you to sell in panic, but staying the course often leads to better results. Historically, downturns have been followed by recoveries.

Tip: Dollar-cost averaging can help reduce emotional decision-making and smooth out volatility.

Source: MFS

5. Maintain a Cash & Money Market Reserve. Keep some liquidity on hand so you can take advantage of undervalued assets, and also for emergencies, so you don't have to dip into investments if things are down in value. Downturns often create buying opportunities for strong assets at a discount. (Warren Buffett’s strategy of cash reserves enabled Berkshire Hathaway to capitalize post-2008).

Technology is a Resilient Sector with Continued Room for Global Growth

• Cloud Computing & AI: Companies in this space continue to grow as businesses digitize operations.
• Cybersecurity: Increased cyber threats drive demand in this space.
• Semiconductors: Despite trade restrictions, companies will benefit from AI advancements and domestic chip manufacturing incentives.
• Automation & Robotics: Businesses investing in automation to counter rising labor costs.
• E-Commerce & Digital Payments: Consumer purchasing continues to shift online.
• Innovation: Software and automation firms could thrive in the long-term as businesses seek increased efficiency and methods for cost-reduction. (E.g., Tech stocks boomed post-2000 despite manufacturing declines. Companies like Apple, Amazon, Google, and Microsoft saw massive growth, driving the tech sector to dominate the stock market. Meanwhile, U.S. manufacturing declined due to offshoring, automation, and global competition, leading to job losses in traditional industries).

The MSCI China Index has led major global equity benchmarks this year, rallying 18% as of March 12, fueled by gains in information technology and consumer discretionary sectors. As the chart shows, China’s innovators have outpaced their Magnificent 7 (Mag 7) counterparts and the broader S&P 500 Index.

Understanding the Market Cycle of Emotions

Investing is simple, but not easy. Cognitive biases like herd mentality, loss aversion, and anchoring lead investors to overlook key details, resulting in poor financial decisions. The market cycle of emotions refers to the psychological stages investors go through during market fluctuations. Understanding this cycle helps avoid emotional decisions so you can stay focused on long-term goals rather than reacting to inevitable market movements. 

The cycle of emotions typically follows this pattern:

Source: Capital Group

• Optimism: After a market rally, investors are confident and excited about future gains.
• Excitement: As prices rise, emotions intensify, and more investors jump in, often without considering risks.
• Thrill: Investors feel a sense of euphoria and believe the market will continue to rise indefinitely.
• Elation: At the peak, everyone is confident, and market prices are often at their highest.
• Anxiety: When the market begins to fall, doubt sets in, and investors worry about losing their gains.
• Fear: As prices continue to drop, fear takes over, and many investors start to sell, fearing further losses.
• Despair: At market lows, investors feel hopeless and discouraged, often selling at the worst time.
• Panic: The lowest point, where investors are driven by emotions and sell out of desperation.
• Hope: Eventually, the market stabilizes, and investors begin to feel hopeful again.
• Relief: As the market recovers, investors regain confidence, starting the cycle over again.

While recessions and tariffs bring high levels of uncertainty, markets have always moved in cycles—when one investor exits, another often sees an opportunity.

What You Can Do Today

• Do NOT: Alter your entire investment strategy or try to time the market. Most retail investors fail miserably at this strategy, often selling at the very worst moments and reentering far too late—locking in long term losses and missing any chance for recovery. You will be traumatized if you operate in this manner.
• Do:  Focus on steady, disciplined investing to navigate volatility successfully.
• Consider dollar cost averaging: Adding a fixed dollar amount to your portfolio monthly to take advantage of swings in market pricing.
• Evaluate your monthly expenses and reduce spending on extras, especially if you are living on a fixed income in retirement. 
• Maintain an emergency fund.
• Look for oversold stocks: Many high-quality companies are undervalued in the current downturn. 
• Consider investing in ETFs to provide more diversified exposure.
• Consider AI & Cloud Services: These segments continue to expand globally despite economic volatility.
• Diversify with Cybersecurity Holdings: Cyber threats remain an international growing risk, making security stocks a strategic investment.
• Consider consumer staples: companies providing essential goods like food, household products, and healthcare supplies—which tend to remain resilient during economic downturns and offer reliable returns.
• Consider incorporating broad-based international funds into the mix: International funds offer exposure to global growth, but they come with known risks like currency fluctuations, geopolitical instability, and continued trade tensions. They can provide opportunities in high-growth regions like Asia, but will also be affected by ongoing market volatility. 

The complexity of supply chains makes it nearly impossible to predict the full impact of tariffs on the economy. Higher prices and slower growth are on the horizon. Many expect tariffs to hurt company profits by raising costs and reducing revenues, fueling recession fears and pressuring stock prices. Companies could struggle with debt and rising borrowing costs, weakening credit markets. Be cautious with companies carrying high debt, especially as borrowing costs also remain high. Dividend-paying stocks can provide steady income, and a well-diversified portfolio, combined with a long-term perspective, helps mitigate risks and capitalize on economic shifts. 

Final Words of Wisdom

It’s natural to feel uneasy, even for those who understand market and economic cycles. Emotions can cloud judgment, leading to impulsive decisions. Before making any changes to your portfolio, ensure your emotions are in check and consult a financial planner  for tailored guidance based on your unique situation.

This content is developed from sources believed to be providing accurate information. Market cycle of emotion image sourced from Capital Group. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.