REDW Wealth Management advisors Robert Elzholz, Principal, and Jude Gleason, Chief Investment Officer, recently shared their perspectives on navigating market volatility and understanding tariff impacts. As market uncertainty continues to dominate headlines, historical context and practical guidance can help investors maintain perspective.
Understanding Tariffs in Today’s Economy
Tariffs are taxes on goods imported from other countries, designed to protect domestic producers from foreign competition. Four key factors influence how tariff policies develop and impact the investment environment:
- Decoupling – when used to separate economies, tariffs may persist for longer periods
- Rebalancing – aims to adjust trade relationships to perceived inequities
- Negotiating – typically shorter-term in nature as part of trade discussions
- Funding – used to generate revenue for government initiatives
| Decoupling | Rebalancing |
|---|---|
| Shift supply chains and reduce reliance on certain countries – Potential Impacts: High, persistent – Countries: China – Industries: Tech, energy, industrial materials, pharma, biotech, aircraft | Reduce trade deficits and boost domestic production – Potential Impacts: Medium, persistent, mixed – Countries: China, EU, Japan, South Korea, Vietnam, India, Mexico, Canada, Brazil – Industries: Autos, steel, aluminum, agriculture, food, chemicals, consumer electronics, pharma, luxury, defense, energy, oil |
| Negotiating | Funding |
| Use economic pressure to achieve policy outcomes – Potential Impacts: Low, temporary – Countries: China, Mexico, Canada, EU, Japan, Latin America – Industries: Autos, steel, agriculture, consumer electronics, construction machinery, minerals, defense, energy, semiconductor equipment | Generate revenue to fund budget priorities – Potential Impacts: High, persistent – Countries: May be a broadly applied universal tariff – Industries: Consumer goods, autos, industrials; price effects and margin pressure across industries |
The U.S. trade deficit for goods reached $1.1 trillion in 2024.
While tariffs can cause inflation, especially if persistent over time, the U.S. economy has advantages of size and resilience that may help investors weather changes in trade policy.
The impact on countries that rely heavily on U.S. trade, such as Mexico and Canada, could be more significant as exports to the U.S. represent approximately 20-25% of their GDP.
Market Performance: The Historical Perspective
What affects a stock’s current price? While the market is constantly taking in all available information, it is usually forward-looking as it typically considers the company’s equity, prospects for future earnings and perceived risk. When balancing consideration of high levels of risk and expectations of earnings, these factors collectively determine the price.
When looking at market history, a clear pattern emerges. Despite periodic declines, markets have historically trended upward when viewed over extended timeframes. This upward trajectory spans through significant historical events, recessions, and periods of uncertainty.
The comparison between bull and bear markets tells an important story. Bull markets (periods of rising prices) have lasted an average of 67 months with 265% total returns, while bear markets (declines of 20% or more) have averaged 33% losses over much shorter periods. This demonstrates that periods of growth have historically been both longer and stronger than periods of decline.
Perhaps most importantly, investor emotions often drive short-term market movements, while fundamentals like company earnings and economic conditions drive long-term performance. The emotional cycle of investing—from optimism to fear and back again—can lead investors to make decisions that run counter to their long-term interests.
Why Timing the Market Rarely Works
One of the most compelling arguments for maintaining a disciplined investment approach comes from examining the consequences of attempting to time the market by moving to cash during downturns:
- Missing just the 10 best trading days in the market can reduce average returns from 10.4% to 6.1%.
- 7 of the 10 best trading days occurred within two weeks of the 10 worst trading days
The probability of underperforming a balanced portfolio increases the longer you stay in cash:
- 74% probability if in cash for 3 months
- 71% probability if in cash for 6 months
- 87% probability if in cash for 12 months
This data shows that even brief absences from the market can significantly impact long-term results, and that the best days often occur close to the worst days, making successful timing extremely difficult.
Exiting and re-entering the market during volatility relies on short-term speculation, rather than long-term investing. It’s important for investors to keep an eye on the long term and ensure their plan aligns with their investment horizon.
Weathering Market Storms
History shows that markets often recover precisely when outlook seems bleakest. During the 2008 financial crisis, domestic markets dropped nearly 50% at their lowest point (international markets fell even further, down 60%). While the year ended with a 28% decline, the following years saw consistent growth, eventually leading to a bull market that lasted approximately nine years.
This pattern illustrates an essential truth about investing: to capture the higher returns that markets historically provide, investors must endure periods of volatility and uncertainty. Those who move to cash during downturns often miss the substantial returns that follow recovery periods. Risk and reward and inextricably linked—the potential for higher returns comes with accepting periods of volatility.
The Power of Diversification and Time
Diversification across asset classes helps smooth investment returns over time. Looking at historical data since 1950, a diversified portfolio typically avoids both the highest highs and lowest lows of individual asset classes. Each year, different asset classes lead in performance—from real estate to stocks to bonds—with no single asset class consistently outperforming others.
Time in the market further reduces risk. While one-year returns for a balanced portfolio (60% stocks, 40% bonds) can range from -20% to +34%, twenty-year returns have historically never been negative. Even five-year holding periods significantly reduce risk compared to shorter timeframes.
This demonstrates that the combination of diversification and time can be a powerful tool for managing investment risk.
Navigating Through Uncertainty
When markets decline, it’s natural to feel concerned. However, it’s during these periods that maintaining discipline is most important. As the saying goes, “It’s about time, not timing.”
Historical data shows that investors who stay the course through market volatility have generally been rewarded for their patience.
Some key principles to remember during market uncertainty:
- Market declines, while uncomfortable, are a normal part of investing
- A well-constructed, diversified portfolio is designed to weather market volatility
- Short-term market movements are often driven by emotions rather than fundamentals
- The largest recoveries often happen quickly and without warning
The distinction between speculation and investing is crucial. Speculation focuses on short-term price movements, while investing takes a longer-term approach based on fundamental value. Panic is not a plan—having a well-thought-out investment strategy and sticking to it through market cycles is typically more effective than reacting to daily headlines.
This blog post provides educational information from REDW Wealth Management. The content is educational in nature and does not constitute personalized investment advice. For questions about your specific situation, please contact your REDW Wealth advisor.
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© 2025 REDW Wealth LLC. This publication is intended for general informational purposes only and should not be construed as investment, financial, tax, or legal advice. Information and instruction shared in the article above do not guarantee outcomes, performance, or quality of services provided to REDW Wealth Management clients by REDW Wealth Management or its employees. Adherence to our fiduciary duty is not a guarantee of client satisfaction or any particular outcome. Advisory, Assurance, and Tax is offered through REDW LLC. Wealth Management is offered through REDW Wealth LLC.
