The United States and global stock markets have definitely been hit quite hard since President Donald Trump announced to the world that he has new tariffs to implement.
The so-called “Liberation Day” marked the introduction of blanket 10% tariffs on all imported goods, and additional import taxes were placed on 60 other countries.
Probably in the worst week for U.S. stocks since the markets crashed in 2020 during the COVID-19 pandemic, Dow Jones closed on Friday 2,000 points down, the S&P Index plunged 6%, and NASDAQ dipped almost 6%.
The well-known volatility of the market has risen significantly, which has caused multiple concerns from investors and businesses alike, sparking fresh fears that the U.S. could be heading into a recession.
There has also been a surge in concerns being voiced by people, deeply worried about the impact on their 401(k), especially since many noticed a dip in their investments.
Well, here’s what you need to know regarding the economic turmoil resulting from Trump’s tariffs, and how it could affect your 401(k), and what you should do moving forward.
How is your 401(k) affected?
A 401(k), as we all know, is an employer-sponsored retirement plan, where you have the option to make contributions that are automatically deducted from your paycheck.
In some instances, the company can match your contributions up to a certain percentage of your salary. The value of a 401(k) account is directly related to the fluctuations in the stock market, as the portfolio lets you invest in assets that are linked to the market’s performance.
Considering this, when the stock market fluctuates, so does the 401(k). With a 401(k), you carry the risk, since the investment decisions are only yours.
With such extreme dips in the stock market, some Americans see their retirement savings take the hit. During a recent appearance on NBC’s Meet the Press on Sunday, April 6, Treasury Secretary Scott Bessent answered questions regarding the market turmoil, as well as the concerns regarding retirement savings.
Host Kristen Welker explained: “Over 160 million Americans are invested in the market today. Many of them spent their entire lives for their golden years.
What is your message to Americans who want to retire right now, and who’ve just seen their lifetime savings drop significantly?” Answering the question, Bessent stated that he thinks it’s a “false narrative,” suggesting that people should keep a “long-term view.”
He also added that Americans who plan to retire right now and those who have put away for many years to grow their savings accounts don’t look at the day-to-day fluctuations of what’s happening.
“Most Americans don’t have everything in the market, as the statistics are showing.” (worth taking with a grain of salt) “The wide majority of Americans in a 401(k) have something known as a ’60/40′ account.”
As he explained, 60/40 accounts are down 5 or 6% on the year. Most of them have a long-term view, and they know very well that the reason the stock market is seen as a good investment is because it’s a long-term one. If you look day by day, week to week, it’s quite risky. But in the long term, as he added, it’s a wonderful investment.
Bessent’s remarks wildly mirror those made by President Trump. On April 3, when aboard Air Force One, Trump was asked by a reporter about the rising concerns among Americans and whether or not he has checked his own 401(k), especially since his tariffs announcements stunned the stock market.
Trump also stated that he didn’t even bother checking his 401(k). The President even doubled down on his belief that yes, the markets might look bad now, but his tariffs will ultimately be a good thing for the economy.
“I think our markets will boom, we need to give it a little chance.” Once again, the president shared his unwavering optimism about the economy on his social media platform.
“This is an economic revolution, and we will win. Hang tough; it won’t be easy, but the end result will be historic. We will make America Great Again.” Nevertheless, experts have their own concerns.
Teresa Fort, a well-known associate professor of business administration at Dartmouth, explained that the U.S. market has outperformed everywhere for the last couple of decades.
“It’s not clear that this will continue…the entire world economic order has been completely shifted, and people will need to rethink what their optimal allocations should be.”
What’s the advised decision here?
Brad Clark, founder and CEO of Solomon Financial, declared that this is not the best time to panic and take your money out of savings. He admitted the landscape seems a bit bleak, but the response to fear, in his opinion, is to stay the course.
This goes even more if you are a younger investor preparing for future retirement. “When you fly somewhere and you are in the worst turbulence you have ever been in, all you can think is ‘I’ve just got to get off this plane.
But remember that the plane was built to handle this. This is your portfolio.” For people two or three years away from retirement, Clark reassured them by saying that their portfolios should already be less risky, and they shouldn’t have full market exposure to their investments.
But, for those who are still 10 or more years away from retirement, there might be positives worth noting. “What a wonderful buying opportunity,” he argued.
“This is how the Warren Buffetts of the world make money. Greedy when everyone else is fearful and fearful when everyone else is greedy.”
On the other side, Laurence Kotlikoff, a respected professor of economics at Boston University, decided to take a more cautious stance for people of all ages.
He advised not investing in anything too risky right now, and to start instead from a safe investment position and build your investment portfolio back into something a bit more risky.
By starting conservatively and slowly building up, Kotlikoff said that investors can easily save themselves from pain later down the line.
“There’s truly no reason to believe the market will reverse itself,” as he explained. “Leave only in the market what you can afford to lose, and try not to spend outside of it.”
He also advised people to try what he and his wife did. Preparing for potential market fluctuations, they built a TIPS ladder, which is a portfolio of Treasury Inflation-Protected Securities.
TIPS are U.S. government bonds that adjust for inflation, making sure that the bond’s principal increases with inflation and then decreases with deflation.
“It’s a mix of spending and investing behavior known as ‘upside investing’ that leads you just to have upside risks.” He then added that you are losing that downside because you never really spend out of anything that’s risky, you just spend out of this TIPS ladder.
Even if some economists advise staying the course as usual, these aren’t exactly usual times, and many feel that the markets are only bound to dip even further.
This seems to be a fundamental shift in the world order, and if you are getting closer to retirement age, what you might want to try is to look for the safest assets, especially if you cannot afford another 20% to 30% decline in the market.
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