Trump's tariff threats are back. What should you do about your 401(k) and investments?

San Francisco Chronicle​

20 hours ago

Wall Street seems to be shrugging off President Donald Trump's latest round of tariff threats. Should you?
The 90-day 'pause' on sweeping U.S. tariffs was scheduled to end Wednesday, but Trump extended the deadline to Aug. 1. Fresh threats went out this week to more than 20 countries — including Japan, South Korea, Canada, Mexico and Brazil — as well as the European Union for reciprocal tariffs ranging from 20% to 50% starting that day. On Wednesday, Trump said a 50% tariff on copper would also take effect on that date.
The first time tariff threats were issued, in Trump's April 2 'Liberation Day' announcements, the markets reacted by plunging into bear territory. The S&P 500 lost 10%, Nasdaq was down 11%, and the Dow dipped 9.48%. And despite the Trump administration's firm messaging that the president would never back down on the tariffs, he did. A 90-day pause was announced, and an acronym was born on Wall Street: TACO, short for Trump Always Chickens Out.
The chaos also sowed widespread financial fear among Americans. Some investors panicked and sold when the market dropped. People at or nearing retirement worried they didn't have the horizon to ride out a prolonged down period.
The Chronicle asked experts at the time what people should do with their money, with their 401(k), and with their investments if they were already retired.
They all said the same thing: Stay the course. Each pointed out that market fluctuations are to be expected, and things always get back to normal, though it might take a while. In this case, it took very little time at all: The market losses were erased by the end of May.
A different picture this time
This time around, Wall Street doesn't appear to be taking the trade war too seriously, though markets bounced around a bit during the week.
There was a notable downturn of nearly 1% on major markets after the tariff letters went out Monday, but things quickly rebounded. Then a letter Trump sent to Canada late Thursday suggesting the country could face a higher 35% tariff led to another small downturn Friday: The Dow fell by more than 250 points and closed down 1.02% for the week; the S&P 500 was down .31% and the Nasdaq down .08% for the week, though both hit record highs on Thursday.
Overall, 'The market really seems to be shrugging this latest round of tariff threats off,' said Christine Benz, the director of personal finance and retirement planning for Morningstar. 'It seems to effectively be calling the president's bluff.'
Still, she added, that doesn't mean we're out of the woods.
'U.S. stocks are not cheap, and when that's the case, they can be vulnerable to whatever shock that comes along, whether tariffs, geopolitical uncertainty or signs that the economy is slowing down,' Benz said.
Historically speaking, the market always rebounds from those shocks. We just saw it happen in April. Back then, Matthew Chancey, a certified financial planner and the founder of Tax Alpha Companies, said some people experience a type of cognitive bias where they believe what they're experiencing is completely unique and no past patterns or rules apply — sometimes referred to in economics as the 'this time it's different' fallacy. People who said 'this is the end of the stock market forever' in April were wrong, and anyone who thinks this time around will be the definitive end of the American economy is probably wrong, too.
'The current administration has not articulated a consistent trade policy, and every position is only a compliment away from being reversed,' said Carlos Aguirre, a financial literacy and career development manager for San Mateo-based Peninsula Family Service. 'As a result, Wall Street seems to be tuning out the noise coming out of the White House.'
Should you be tuning it out, too? Or is this an opportunity to make some moves to protect yourself and your savings? Here's what experts say.
What should you do with your retirement and 401(k) right now?
The Chronicle went back to every expert and asked them what people should be doing with their money right now to prepare for tariffs 2.0. The overwhelming advice: Stay the course.
'Generally that's always the right thing to do, keep it steady and don't do anything crazy,' said Sam Nofzinger, the general manager of brokerage for investment platform Public. Like Benz, he said just because things seem calm right now doesn't mean they'll stay that way: 'I do think we are going into some much more uncertain times.'
On Public, he said he's observed some unusual investor activity over the past three months. More people have been searching for international stocks and crypto. He's seen more movement in diversified ETFs (investment funds that hold multiple assets like stocks, bonds and commodities) than traditional single stocks, and said for the first time in a decade he's seeing interest in international ETFs. And some people are opting to stash more in cash through high-yield savings accounts, reflecting uncertainty about the economy in the near term.
'What we're seeing, given the economy, people are a lot less confident in their job security than they may have been six to nine months ago,' he said. 'That's translating to higher emergency savings balances. People saving 12 months instead of six. I think we are seeing people get conservative because they're worried about their own situation.'
Another chance to 'buy the dip'?
In the post-Liberation Day downturn, some investors joked that it wasn't a stock market tumble — stocks were just on sale. If you put a little more money into the market then, what's known as 'buying the dip,' you probably saw a decent quick return.
'For folks that have a relatively good time horizon, any time the market is off 20% is a good time to buy,' Nofzinger said. But it could take years, not weeks or months, to see your return.
JL Collins, the author of 'The Simple Path to Wealth' (the most recent edition of which was published in May), said he's not a fan of the practice.
'Research indicates 'buying the dip,' while sounding good, is not all that useful,' he said. 'Better to set up automatic investments and then, when the market happens to be down, celebrate buying shares at bargain prices.'
Of course, it's always a good time to do a money check-in and revisit the fundamentals. If you did my Wealth Challenge back in January, we're now halfway through the year. (If you didn't, you can sign up at sfchronicle.com/wealthchallenge). Are your investments and savings automated? Do you have a budget for your house — not in your head, but written down somewhere? Is your emergency fund in good shape?
If you've got the basics down, there's no reason to sweat when politicians turn up the heat.