What are some of the major moves in US and international markets from the past quarter, and what does it show us about diversification? In this episode, we talk about navigating market volatility, discuss the impact of recent tariff news and what those headlines might mean for the economy and your portfolio, and share evidence-based strategies for taking action (or not!) when markets get rocky.
Understanding Diversification, Market Swings, and Steps You Can Take in Uncertain Times
If you’ve been following recent headlines, you’ve likely noticed heightened chatter about turbulent markets, headline-making tariff news, and plenty of investor anxiety. The recent quarter was anything but dull: US stocks dipped roughly 5% for the first quarter, with international markets up 3-6%. The US stock market peaked in mid-February, then slid about 10% from the high, even dipping as much as 18-19% during the most volatile periods. Meanwhile, bonds delivered a steady but unspectacular 1-3%, quietly doing their job as buffers in diversified portfolios.
The big picture? Market swings are far more ordinary than the headlines let on. Listen in as we highlight research showing the stock market typically experiences a 14% decline at some point each year. Whether it’s 2020’s infamous 34% COVID crash or milder drawdowns, volatility is the “fee” investors pay for the upside of equities.
Why Diversification Matters Now More Than Ever
This year, international markets outperformed US stocks by about 14%, a powerful case study in diversification. Many investors wonder why they should stick with underperforming or unloved asset classes. But as Mike explains, “Diversification is to your benefit over the long term because we don’t know what’s going to be the best performer in advance.”
Diversification isn’t just a buzzword; it’s protection against the unknown. Markets often surprise, and sectors or countries that lag can turn into leaders. This quarter, while the US stock market struggled, countries like Spain and Norway saw huge gains, sometimes topping 20%.
The same lesson applies within the US: while the much-hyped “Magnificent Seven” tech giants saw losses, stalwarts like Berkshire Hathaway, IBM, and Coca-Cola performed well. Avoiding the temptation to load up on recent winners and spreading your bets protects your portfolio through unpredictable cycles.
Tariffs, Headlines, and Market Surprises
One of the biggest sources of volatility this quarter was tariff-related news. Trade policy changes can immediately impact company profits, consumer prices, and entire market sectors. Mike shares that tariffs act as a corporate tax: Companies paying more to import goods may either pass costs to consumers or see profit margins shrink. The uncertainty around how and when tariffs might be implemented leads to the fast-moving, unpredictable market reactions we’ve seen.
Historically, tariff rates haven’t jumped so dramatically since the early 1900s. Markets have responded accordingly, with some of the most significant daily moves in years. Amid this chaos, the key takeaway is that uncertainty is often worse for markets than bad news itself, and trying to react in real-time is often a fool’s errand.
Smart Moves in Down Markets
So, what’s the savvy investor’s playbook if volatility is normal and the future unknowable? In this episode, we discuss three approaches:
- Hold or Buy, Don’t Sell:
Bad investors panic sell in downturns; great investors consider adding to portfolios if their plan, goals, and risk tolerance allow. Staying committed and sticking to your personal investment plan is the best predictor of long-term success.
- Tax-Loss Harvesting:
Market downturns often mean some holdings can be sold at a loss to offset future gains and reduce your tax bill. This “silver lining” can put real money back in your pocket, without abandoning your investment plan.
- Rebalancing and Process Discipline:
A rules-based approach to rebalancing means buying low and selling high, systematically, not emotionally. Whether it’s repositioning between stocks, bonds, domestic, or international holdings, discipline wins over gut feeling.
No one knows exactly how markets will move week to week. But successful investing comes from process, patience, and perspective. Follow your plan. Diversify globally, across asset classes and geographies. Use periods of volatility to optimize taxes or rebalance.
Outline of This Episode
- [0:00] Major moves in US and international markets from the past quarter
- [04:22] The benefits of diversified portfolios
- [09:15] Trade deficit and tariffs explained
- [09:54] Tariffs impact product prices, and consumer costs increase
- [13:03] Historic tariff surge of 22% shocks the stock market
- [16:27] Top Tech Chart Insights
- [20:39] Interest rates are expected to decline, making equities better for long-term growth
