Rising global trade tensions and tariffs are increasing market volatility, challenging retirees and pre-retirees to manage risk, stay diversified and protect income. Strategies include rebalancing portfolios, building cash buffers and aligning asset allocation with long-term goals.
It’s safe to say that investors have been rattled by the Trump administration’s tariffs and trade wars.
These developments aren’t just headlines; they affect actual portfolios. For retirees or those nearing retirement, the idea of making withdrawals from stocks trading at new lows can be terrifying.
However, here are some ways investors can weather the storm by keeping calm and maintaining a diversified allocation.
Tariffs Are a Drag on Growth
Rising tariffs and trade wars are driving economic uncertainty, fueling market volatility and stunting growth in vulnerable sectors and regions, says Michael Anderson, a certified financial planner at Advice Only in San Diego.
“The Covid-19 pandemic exposed critical weaknesses in global supply chains, notably China’s dominance in pharmaceuticals and semiconductors,” Anderson says.
Less spotlighted, but equally vital, he adds, are dependencies like Canada’s role as the top supplier of crop fertilizer to the U.S. and a key provider of water to multiple states.
These vulnerabilities not only strain supply chains, as is well known, but they also dampen economic growth by increasing costs, delaying production and reducing efficiencies.
Sectors Hit Hardest by Disruptions
In any market pullback, some sectors will feel more damage than others.
“Industrials, technology and consumer discretionary sectors tend to be the most exposed to global trade disruptions due to their heavy reliance on overseas supply chains and export demand,” says Jordan Gilberti, founder and certified financial planner at Sage Wealth Group in New York.
For example, semiconductor companies, automobile manufacturers and multinational retailers can experience production delays, cost increases or declining revenues when tariffs rise or supply chains are disrupted, Gilberti adds.
Volatility Reveals Portfolio Weaknesses
Gilberti urges retirees and near-retirees to look closely at their equity exposure, as rising tariffs and trade wars tend to increase market volatility and can weigh on global economic growth.
“For retirement portfolios, this means increased risk exposure, particularly in international and export-heavy holdings,” he says.
Gilberti suggests that investors nearing or in retirement should pay close attention to diversification and make sure they are comfortable with the types of risk their portfolios may be facing.
Portfolios should be designed in accordance with an investor’s financial plan. That’s dependent on factors such as time horizon, investment objectives and risk tolerance.
However, many investors assume that having a high risk tolerance is a badge of honor; in reality, it’s tied to retirement income needs and life expectancy, not a desire to load up on risk assets.
In addition, in a bull market, it’s easy to say your risk tolerance is high; that can change fast when markets head south.
Anderson notes that volatility can test investor behavior:
“As an advice-only financial planner, I’ve observed that market turbulence often reveals a client’s true risk tolerance, which may be lower than previously assumed,” he says.
Asset Allocation Still Comes First
Because they’re linked to comprehensive financial plans, retirement portfolios shouldn’t be shaken up when the market turns volatile.
It’s tempting to tinker with your portfolio, but that instinct can backfire. The quote “Don’t just do something, stand there” is often attributed to Jack Bogle, founder of Vanguard and a pioneer of passive investing. Whether or not he actually uttered those words, they reflect his philosophy of staying the course during market turbulence.
For retirement investors, that wisdom holds especially true. A well-constructed portfolio is designed to endure both calm and chaos, and sticking to the plan is often the most effective strategy.
“An ideal allocation doesn’t depend on the state of the economy,” says Kevin Estes, a CFP who’s founder of Scaled Finance in Bellevue, Washington. “How much to hold in U.S. stocks, international stocks, bonds and cash depends more on an investor’s risk capacity and when they’ll need the money.”
Good Time to Rebalance
Estes also suggests a disciplined strategy for maintaining that allocation.
“An investor could regularly rebalance back to their target allocation,” Estes says. “This process may systematically sell assets that have done relatively well and buy those which have underperformed.”
For example, U.S. large cap techs have dominated the market in recent years.
“For those who have held a U.S.-centric portfolio for the past decade plus, now would be a good time to re-evaluate the asset allocation to include a more diversified approach,” says David Rath, partner and chief investment officer at Continuum Wealth Advisors in Saratoga Springs, New York.
Build a Buffer and Income Strategy
Anyone who recently retired or plans to retire this year is facing what’s called sequence of returns risk. That’s the danger that poor investment returns early in retirement, when withdrawals begin, can permanently reduce a portfolio’s value.
Even if average returns are strong over time, early losses combined with regular withdrawals can put a significant dent in long-term income sustainability.
Rath encourages proactive planning for retirees already taking withdrawals:
“Ideally, the preparation for the market volatility we are currently experiencing has already been done by you or your advisor. If you are taking distributions from your investments regularly, you should have a strategy in place to deal with this exact situation,” he says.
For example, that strategy may consist of a “bucket” for low-risk vehicles such as cash or Treasury Bills to pay for living expenses in the near term. A pre-set plan to reduce discretionary expenses if your portfolio value falls below a certain threshold is another possibility.
“An analysis of stable sources of income, such as Social Security, pensions or annuities, versus variable sources from an investment portfolio can provide a picture of the exposure of a retiree’s situation to further volatility,” Rath says.
Volatility Isn’t All Bad
Investors who haven’t yet retired and don’t plan to in the immediate future may find that market turbulence offers a chance to strengthen financial habits, like consistent investing and regular rebalancing.
“For those with a longer runway to retirement, volatility can actually present buying opportunities if they stay disciplined with rebalancing and avoid panic-selling,” Gilberti says.
It may be easier said than done, but staying grounded during unpredictable market cycles can help reinforce a long-term mindset.
“The worst thing to do right now is panic,” Rath says. “We can’t change what has happened, but we can objectively evaluate the next steps forward.”
Editor Norah Layne contributed to this article.
