Trump’s Tariffs and Your 401(k): Understanding the Impact and How to Respond

Since President Donald Trump’s recent tariff announcement on April 2, U.S. and global stock markets have experienced significant turbulence. The introduction of a blanket 10% tariff on all imported goods, along with additional import taxes on 60 other countries, has been dubbed “Liberation Day.”

In the wake of the market downturn reminiscent of the 2020 COVID-19 pandemic crash, the Dow Jones Industrial Average fell by 2,000 points on Friday, the S&P 500 Index dropped by 6%, and the Nasdaq Composite experienced a similar decline of almost 6%.

This increased market volatility has sparked concerns among both investors and businesses.

Many individuals are also expressing worries about the impact on their 401(k) retirement savings, with several reporting a decline in their investment values.

Here’s a breakdown of how the economic uncertainty stemming from Trump’s tariffs might affect your 401(k), along with guidance on how to navigate this situation.

How is your 401(k) affected by the tariffs?

A 401(k) is a retirement savings plan where employees can contribute pre-tax money deducted directly from their paychecks. Some employers also offer matching contributions up to a certain percentage of the employee’s salary.

The value of 401(k) accounts is closely linked to the performance of the stock market because the portfolio allows investments in market-dependent assets. Therefore, market fluctuations directly impact 401(k) balances. With a 401(k), the individual bears the investment risk.

Due to the recent sharp declines in the stock market, many Americans are witnessing substantial losses in their retirement savings.

Dartmouth business administration professor Teresa Fort commented on the volatility, stating, “The U.S. market has been a leading performer for the past two decades, but its continued dominance is uncertain… the global economic landscape has undergone a fundamental shift, requiring individuals to re-evaluate their optimal investment allocations.”

On April 3, while traveling on Air Force One, President Trump addressed growing public concerns regarding his tariff announcements’ impact on 401(k) plans and whether he had personally checked his own.

Trump responded, “I haven’t checked my 401(k).” He reiterated his belief that despite current market conditions, his tariffs would ultimately benefit the economy, saying, “I think our markets are going to boom; we’ve got to give it a little chance.”

The President reaffirmed his optimistic economic outlook in a Truth Social post on Saturday, April 5, stating, “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.”

What do experts advise you should do about your 401(k)?

Solomon Financial founder and CEO Brad Clark advises against panic selling, emphasizing that now is not the time to withdraw funds from savings. While acknowledging the current “scary” environment, he suggests that the appropriate response, especially for younger investors planning for retirement, is to maintain their investment strategy.

Clark compares the situation to severe turbulence during a flight, stating, “When you’re flying somewhere and you’re in the worst turbulence you’ve ever been in, all you can think is, ‘I’ve just got to get off this plane,'” says Clark. “But the plane was built to handle this. That’s kind of like your portfolio.”

Clark notes that individuals nearing retirement (within two to three years) should already have de-risked portfolios with reduced market exposure.

However, he suggests that those more than 10 years from retirement might see the current situation as a “great buying opportunity,” explaining, “This is how the Warren Buffetts of the world make money. Greedy when everyone else is fearful, and fearful when everyone else is greedy.”

Clark advises individuals with a decade or more until retirement to “continue to invest like you’ve always invested,” expressing confidence that this approach will be rewarding in the long term.

In a Washington Post column, personal finance expert Michelle Singletary echoed this view, advising, “If you’re in your 20s, 30s, or early 40s, don’t let what’s happening now scare you away from the stock market. Keep investing,” .

Boston University economics professor Laurence Kotlikoff recommends a more cautious strategy for investors of all ages.

He advises against risky investments at this time, suggesting a return to safer investments and a gradual rebuilding of a riskier portfolio. Kotlikoff believes this conservative approach can help investors avoid future losses.

“There’s no reason to believe that the market will reverse itself,” he says. “Leave only in the market what you can afford to lose and don’t spend outside of it.”

He also suggests considering a strategy he and his wife implemented following Trump’s Inauguration: constructing a , which is a portfolio of Treasury Inflation-Protected Securities.

TIPS are U.S. government bonds that adjust to inflation, ensuring that the bond’s principal increases with inflation and decreases with deflation.

“It’s a combination of spending and investing behavior that is called ‘upside investing’ that leads you just to have upside risks,” Kotlikoff says. “You’re losing that downside because you’re never spending out of anything that’s risky, you’re just spending out of this TIPS ladder.”

Fort supports Kotlikoff’s cautious stance, pointing out that while some economists advocate for maintaining the current course, the present circumstances are not typical, and markets are likely to decline further. She has reduced her mother’s market exposure as much as possible, given her reliance on her 401(k).

“This is a fundamental shift in the world order,” Fort emphasizes once more. “If you are close to retirement age, you’ll want to look for the safest assets if you cannot afford another 20% to 30% decline in the market.”

In summary, expert advice varies based on the individual’s age and career stage. Fort, for instance, adopted different measures for her own portfolio compared to her mother’s due to her longer time horizon until retirement. The overarching guidance is to avoid panic and rash financial decisions.

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