March has proven to be a tumultuous month for U.S. financial markets. Despite the S&P 500 achieving two consecutive days of gains, it has still experienced a significant decline of nearly 5% throughout the month. Recent announcements regarding tariffs from former President Donald Trump have contributed to this turbulence, causing fluctuations that have left investors on edge. Although the current market volatility may seem alarming, experts advise against making impulsive decisions.

Understanding Market Volatility

Market fluctuations are a common occurrence in investing, according to Jeff Buchbinder, chief technical strategist at LPL Financial. He notes that volatility should be viewed as a necessary cost of pursuing long-term returns. “Volatility is like a toll investors pay on the road to attractive long-term returns,” Buchbinder remarked in a recent analysis.

• Avoid Panic Selling: Emotional reactions during market downturns can lead to regretful decisions. Selling in a panic locks in losses and misses potential rebounds.
• Long-Term Perspective: History shows that the U.S. stock market tends to rise over time, rewarding those who remain invested through turbulent phases.

Insights from Financial Experts

On NBC News, Treasury Secretary Scott Bessent expressed confidence about recent market drops, stating, “I’ve been in the investment business for 35 years, and I can tell you that corrections are healthy.” He emphasized that corrections are a regular part of the market cycle, and what’s truly unhealthy is a market that rises without pause.

Jon Ulin, a certified financial planner and CEO of Ulin & Co. Wealth Management, cautions against emotional trading: “Reacting emotionally to the markets can wreck your returns.” He stresses the importance of remaining invested rather than trying to time the market, as those who sell during downturns often miss out on significant recovery days.

Current Market Dynamics

For those monitoring their retirement accounts, it’s understandable to feel distressed. The S&P 500’s performance since Trump’s inauguration has been notably challenging, marking the worst start to a presidency since Barack Obama took office. The uncertainty created by fluctuating tariff proposals has led to considerable drops in U.S. stocks, with major indexes like the Dow, S&P 500, and Nasdaq Composite erasing their gains from the election period.

• Recent Market Correction: As of last week, the S&P 500 closed down 10% from its peak on February 19, marking its first correction since October 2023.
• Normalcy of Corrections: On average, the S&P 500 experiences three declines of 5% to 10% each year, making these downturns a typical aspect of market behavior.

The Importance of Diversification

In light of ongoing tariff uncertainties, returning to fundamental investing principles is crucial. A well-diversified portfolio can mitigate risks during market volatility. Ulin describes diversification as a portfolio’s “seatbelt,” providing security amid market turbulence.

• Broaden Your Investments: If your portfolio is heavily weighted in U.S. stocks, consider exploring global markets or increasing your allocation to Treasury bonds.
• “Tariff-Proofing” Your Portfolio: Invest in sectors less susceptible to tariff impacts to enhance your portfolio’s resilience.

Reflecting on Your Financial Goals

Periods of volatility are also an opportunity to reassess your investments. Tom Hainlin, national investment strategist at U.S. Bank Wealth Management, suggests reviewing your financial objectives and ensuring you’re prepared for upcoming expenses.

• Cash Reserves: For those nearing retirement, maintaining sufficient cash in Treasury bills or equivalent assets is essential to minimize “sequence risk.”
• Regular Review: Regularly evaluate your asset allocation and rebalance as necessary to align with your long-term financial strategy.

Conclusion

While market fluctuations can be unsettling, they are an inherent part of investing. Staying calm and focusing on diversification and strategic planning can help investors navigate these turbulent waters. As Ulin aptly put it, “Long-term success is built on discipline, not panic.”

By keeping a level head and continuously evaluating your investment strategy, you can position yourself for success even amidst uncertainty.