T
he U.S. and worldwide stock markets have experienced significant decline following President Donald Trump’s latest tariffs announced on April 2. Dubbed “Liberation Day,” this initiative implemented blanket 10% tariffs on all imported goods alongside additional import taxes on 60 countries.
In the most challenging week for U.S. stocks since the 2020 market crash during the COVID-19 pandemic, the Dow Jones closed Friday down by 2,000 points, with the S&P Index dropping by 6% and Nasdaq experiencing a nearly 6% decline.
Market volatility has surged notably, raising alarms among investors and businesses.
Many individuals have also expressed concerns regarding their 401(k) plans, as numerous investors have observed a decline in their retirement savings.
Read More: Is the U.S. Heading Into a Recession Amid Trump’s Tariffs? ‘Liberation Day’ Fallout Sparks Fresh Fears
Here’s what you need to understand about how Trump’s tariffs-induced economic disruption may impact your 401(k) and the steps you should take moving ahead.
How are the tariffs impacting your 401(k)?
A 401(k) is an employer-sponsored retirement plan that allows individuals to make contributions directly deducted from their paycheck, often with the employer matching a portion of these contributions based on salary.
The worth of 401(k) accounts strongly correlates with stock market fluctuations since the investment portfolio typically includes assets linked to market performance. Hence, a dip in the stock market directly impacts 401(k) account values, and you bear the investment risks, as it is your responsibility to make investment decisions.
As the stock market experiences drastic declines, numerous Americans are witnessing severe impacts on their retirement savings.
Discussing the market chaos, Teresa Fort, an associate professor of business administration at Dartmouth, remarked: “The U.S. market has excelled globally for the past couple of decades, but it’s unclear if this trend will persist… the global economic landscape has shifted, prompting individuals to reassess their optimal allocations.”
On April 3, while on Air Force One, President Trump was questioned by a reporter about growing concerns among Americans, including whether he has personally reviewed his own 401(k) since the market’s decline following his tariff announcements.
Trump replied: “I haven’t checked my 401(k).” He reiterated his belief that the current market situation will improve, asserting that his tariffs would ultimately benefit the economy. “I believe our markets will soar; we just need to give it some time,” he commented.
On April 5, Trump expressed his economic optimism in an update on his social media platform, Truth Social. He stated, “This is an economic revolution, and we will emerge victorious. Stay strong; it won’t be easy, but the eventual outcome will be monumental. We will Make America Great Again.”
Read More: Why Economists Are Horrified by Trump’s Tariff Math
What do experts recommend for your 401(k)?
Brad Clark, founder and CEO of Solomon Financial, advises against panicking and withdrawing savings at this juncture. He acknowledges the fear but urges individuals to maintain their investment strategy, particularly younger investors preparing for future retirement.
“When you’re on a flight and experience severe turbulence, the instinct is to want to get off that plane,” Clark says. “Yet, the aircraft is designed to withstand such turbulence. Similarly, your portfolio is built to endure market fluctuations.”
For individuals nearing retirement within two to three years, Clark suggests their investment portfolios should already reflect less risk and not be fully exposed to market volatility.
Conversely, for those with a decade or more until retirement, there are opportunities to capitalize on. “This is an excellent buying opportunity,” Clark explains. “This is how the likes of Warren Buffett generate profits—being greedy when others are fearful, and fearful when others are greedy.”
His advice for those a decade or more from retirement is to “keep investing as you always have,” expressing confidence that long-term strategies will yield positive results.
In a column for the Washington Post, personal finance author Michelle Singletary backed this recommendation, stating, “If you’re in your 20s, 30s, or early 40s, don’t allow current events to deter you from investing in the stock market. Keep investing.”
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Laurence Kotlikoff, professor of economics at Boston University, adopts a more cautious stance for all age groups.
He recommends avoiding any risky investments currently, advocating for a return to a secure investment position and gradually building a more aggressive portfolio later. By starting conservatively and progressively increasing risk, Kotlikoff argues that investors can shield themselves from future losses.
“There’s no proof that the market will rebound,” he asserts. “Only leave in the market what you can afford to lose and avoid overspending.”
He also suggests individuals might consider creating a TIPS ladder, a portfolio of Treasury Inflation-Protected Securities, as he and his wife did shortly after Trump’s Inauguration Day.
TIPS are U.S. government bonds that adjust according to inflation, ensuring that the bond’s principal rises with inflation and falls with deflation.
“It represents an investment approach termed ‘upside investing,’ which allows you to take on upside risks while mitigating downside losses,” Kotlikoff explains. “You’re offsetting the downside because you never withdraw from risky investments; instead, your expenditures come from this TIPS ladder.”
Fort shares Kotlikoff’s caution, indicating that while some economists encourage maintaining the usual investment course, these are extraordinary times. She believes that further market declines are likely, prompting her to minimize her mother’s market exposure due to reliance on her 401(k).
“This signifies a fundamental shift in the global landscape,” Fort stresses. “For those nearing retirement, seeking the safest assets is crucial if you cannot withstand another 20% to 30% market decline.”
Ultimately, it’s important to recognize that expert advice varies based on age and professional circumstances. For instance, Fort adjusted her financial strategy differently compared to her mother’s approach due to her younger age and longer time horizon until retirement. Across the board, professional guidance emphasizes avoiding panic and refraining from hasty financial decisions.
