The best financial advice right now is the most counterintuitive

Vox

08-04-2025

The Trump administration's announcement of widespread tariffs has thrown the stock market into a tailspin, increasing the odds of a recession.
This economic turmoil could have far-ranging implications, and some Americans' first question — and the outcome they believe they have most control over — is how to handle their retirement savings and other investments. While recent losses to your 401(k) account may inspire panic, experts caution most people (basically anyone not nearing retirement or recently retired, in which case the advice may vary) from making drastic changes to their investment strategy.
The current financial situation is propelled by fear, says Meir Statman, a professor of finance at Santa Clara University and the author of A Wealth of Well-Being: A Holistic Approach to Behavioral Finance.
While selling stocks during a downturn may feel satisfying in the short term and scratches the itch to take some sort of action, Statman says you need to rely on more than intuition in making significant financial moves. 'Surely I wish I sold my stocks on Tuesday of last week, but I didn't, and I cannot sell them now at last Tuesday's price,' Statman says. 'I know that in all likelihood, I'll be making the wrong decision, and that wrong decision is going to cost me if I get out now.'
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The most sound financial guidance will also be the most familiar: Stay the course, don't let emotions be the sole driver of your decisions, and look to the past as a guide.
'It's much easier said than done to distract yourself and not look at your retirement account, not trade at a time of heightened volatility,' says Greg McBride, the chief financial analyst at Bankrate, 'but often the best step to take is to do nothing at all.'
How emotions impact financial decisions
Seeing losses in your portfolio elicits the same fight-or-flight response as other physical or psychological threats, says Danielle Labotka, a behavioral scientist at investment research firm Morningstar. So it's natural to want to pull your money out of the stock market. But in order to invest well, you need to act against this impulse.
'Our brain says, 'This is really bad. It feels really bad. You need to do something, get out,'' Labotka says. 'The problem with that is that investing requires us to be patient. It requires us to stick to plans long term. It requires us to persevere when things are difficult and stay the course.'
Both long-term and short-term financial decisions are driven by a mix of emotion and logic, Statman says. But it is important not to let feelings outweigh reason. Recent stock losses have prompted emotional reactions — fear, uncertainty, anger. At the same time, the logical thought process assumes the market will continue to fall based on how it has behaved over the past week. To prevent losing more money, people of course think it's time to sell their stocks.
'The best days in the market often come on the heels of the worst days in the market and nobody's going to ring a bell when it's time.' — Greg McBride, chief financial analyst at Bankrate
However, taking the time to pause and consider the ramifications of your actions may deter you from making short-sighted financial moves. Selling low typically results in a loss and you could come to regret that choice later on.
It is also difficult to gauge the best time to buy and you may miss the upward trajectory. 'Studies have shown that missing the best days in the market significantly reduces your long-term rate of return,' McBride says. 'But the thing is, the best days in the market often come on the heels of the worst days in the market, and nobody's going to ring a bell when it's time for the market to turn around.'
Each downturn feels uniquely scary — but think through long-term financial decisions
While it is impossible to predict the future, looking at history can provide comfort. After each market crash over the last 150 years, the market not only recovered but continued to grow.
Each moment of economic instability has a unique catalyst — currently, a budding international trade war — so it's difficult to make direct comparisons to the downturns caused by the pandemic or the bursting of the dot-com bubble, McBride says. But it can still be beneficial to understand overall trends. 'Look back at the past and say, 'Yes, this feels bad, yes, it may be bad for a while. Who knows?' Labotka says. 'But history tells us that it will end.'
But because no one can predict the exact details of our financial future — which tariffs will be implemented, which will be walked back, how the market will respond — the best way to cope with the unknown, experts say, is to do nothing, at least for the time-being.
This can be particularly distressing advice while watching the numbers in your retirement or investment accounts dwindling. But experts agree to try to keep this news out of mind as much as possible. Try limiting how much financial information you consume, deleting investment apps from your phone, or consulting with a financial adviser who can manage your investments for you.
It's best to create some distance between your knee-jerk impulse and action, Labotka says. Consider what has changed for you financially since the tariffs were announced — 'not what has changed in the markets,' she says. This involves thinking about why you're investing. Maybe that's to better support your loved ones in the future or to donate to worthy causes. Then, think about your financial goals: to retire by 65 or to pay for your kids to go to college. If those motivators and goals haven't changed, neither should your strategy.
'Most likely, your financial plan already accounts for the fact that you're going to have these days in the market where things go horribly awry,' Labotka says, 'and therefore you should stick with the plan, because the plan already accounts for it.'
'Most likely, your financial plan already accounts for the fact that you're going to have these days in the market where things go horribly awry, and therefore you should stick with the plan.' — Danielle Labotka, behavioral scientist at Morningstar
If you do need to make adjustments to your financial plan, Labotka says to increase your cash savings. However, don't divest your stocks just to put that money in the bank. Instead, see where you can cut recreational spending or tighten your budget to offer more of a savings cushion. You may also choose to put a little less money toward your 401(k) and instead put it into a savings account. (But do not stop contributing to your retirement fund altogether.) Older adults, meanwhile, should shift to a more conservative investment strategy to minimize the level of volatility they're exposed to.
Get used to uncertainty
It's okay to acknowledge how the current economic situation is impacting your feelings, Labotka says. If you fail to properly deal with your fear, anxiety, discomfort, or anger, you may rush to eliminate unpleasant emotions with rash decisions.
'When you do that, you're going to be inflicting harm upon your future self,' Labotka says. 'Because in the moment, you're going to feel relieved, but in the future, you're going to be like, 'Wow, I really lost out on a lot of money because I panicked in the moment and sold so that I could feel good then.''
As counterintuitive as it may seem, getting comfortable with economic uncertainty can help you better prepare for when it inevitably happens again. Resist the urge to act quickly and take the long view.