How Can I Protect My Portfolio From What’s Happening in Washington?
**This Blog was written to discuss the market conditions of March 17th 2025.
**As of today, April 8th 2025, a lot has changed. We have all seen the volatility in the market over the last few days. However, a lot of the lessons in this blog are still relevant and major considerations in any market shifts.
Over the past few weeks, the stock market has experienced more volatility than usual. A lot of this uncertainty stems from recent decisions made by the Trump administration.
In this post, I’ll walk you through some of the policies that are contributing to the current market fluctuations, how these policies are being implemented, and the potential impact they could have on your investment portfolio. To close, I'll offer a few strategies for managing this volatility as an investor.
Insights from a Recent JP Morgan Conference Call
I recently participated in a conference call with JP Morgan, where their Chief Global Strategist, David Kelly, discussed the potential economic and market impacts of the Trump administration’s policies.
I want to share some of the highlights from that conversation, which will help frame the broader context of our current market conditions.
State of the Economy and Markets
To start, David Kelly summarized the U.S. economy as of the fourth quarter of 2024.
The economy grew by 2.5%.
Inflation is sitting at 2.5% year-over-year.
The unemployment rate is at 4.25%.
Growth for 2025 is forecasted at around 2%.
While we’re likely to avoid a recession, inflation might hover around 2%, driven down by decreasing shelter costs and reduced inflation in auto insurance.
As for financial markets, 2024 saw an impressive year for the S&P 500, with nearly a 25% return, following a 20% gain in the previous year.
However, the start of 2025 has been more sluggish. As of March 17, the S&P 500 is down about 3.9%. On a more positive note, bonds have outperformed stocks thus far in 2024.
For instance, the 20-year Treasury bond index (tracked through SPTL) has gained 3.09%. Gold is also performing well, up 13.67% this year, while Bitcoin has struggled with a 10.47% loss.
The key takeaway?
Volatility is on the rise, and it’s driven by a combination of market uncertainty and unpredictable policy shifts.
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What’s Driving Market Volatility?
One of the main contributors to the current volatility is the uncertainty surrounding the administration’s trade policies. Here’s a breakdown of some of the most significant policies that are causing waves:
Tariffs:
There’s currently a 20% tariff on all Chinese goods that began in early 2024.
Proposed tariffs of 25% on goods from Mexico and Canada, with potential exemptions.
Additional proposed tariffs on aluminum, steel, and automobiles, particularly from Europe.
The current average tariff rate is around 10.1%, the highest it’s been since 1946. While these tariffs are expected to have inflationary effects in the short term, the long-term impact is harder to gauge.
Increased tariffs could slow down economic growth due to rising costs, but uncertainty over whether these tariffs will remain in place is making it difficult for businesses and investors to plan for the future.
Immigration Policies:
Immigration has been a focal point of the administration's policy agenda, with significant reductions in border crossings and increased deportations.
In February 2025, the number of border apprehensions fell to just 8,000, a stark drop from 47,000 the previous month and 147,000 the year prior.
The slowdown in immigration, especially among working-age individuals, could contribute to a labor shortage, particularly as baby boomers continue to retire. This could push wages higher but also create challenges for industries reliant on low-cost labor.
Government Workforce Reductions:
There’s been a substantial reduction in the federal workforce, with 75,000 federal employees either retiring or being laid off.
This could have an immediate impact on the economy, reducing payroll employment and potentially cutting federal spending on initiatives like Medicaid and NIH grants.
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How These Policies Could Impact Your Portfolio
As David Kelly pointed out, the economic effects of these policies are slowing down growth but have not yet led to a full-blown recession. However, there are several key considerations for investors:
Tariffs: While some of the costs of tariffs may be passed onto consumers, not all businesses can absorb or pass on these increased costs immediately. This could result in lower corporate earnings, which in turn, could lead to a decrease in stock prices.
Uncertainty: Markets dislike uncertainty. With so many unknowns—particularly around tariffs, immigration policies, and government cuts—investors are finding it difficult to predict future profitability for companies. This is contributing to the increased market volatility we’re seeing.
How to Protect Your Investments in 2025
As we approach the first quarter of 2025, the question on many investors' minds is whether a recession is imminent.
Despite some concerns, it looks like we're unlikely to fall into a recession just yet. However, the future remains uncertain, especially with ongoing policy changes.
So, what does this mean for your investment portfolio, especially during times of uncertainty? Here are some tips on how to protect your investments against potential volatility.
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1: Know Your Asset Allocation
The first step in protecting your investments is understanding your asset allocation.
How much of your portfolio is invested in stocks versus other assets like bonds or cash?
If you’re nearing retirement, this is a particularly crucial point. If your portfolio is highly concentrated in stocks, you could be exposing yourself to significant risk. If there’s a major market sell-off — say a 20%, 30%, or even 40% decline — it could seriously jeopardize your retirement goals.
For those in this position, it may be wise to consider rebalancing your portfolio.
This could mean shifting some of your stock investments into safer assets like bonds or cash to cushion against any potential market downturns. A well-diversified portfolio is key to weathering market fluctuations. If you don’t know your current asset allocation, now is the time to assess it and make adjustments as necessary.
2: Rebalance Regularly to Manage Risk
Once you know your allocation, it’s essential to regularly review and adjust it. For clients, we recommend setting a target asset allocation and then monitoring it over time.
If your stock exposure increases due to strong performance, we’ll take profits and rebalance back to your target. On the flip side, if stock prices drop, we look for opportunities to buy more stocks, so you can benefit when the market recovers.
Many investors don’t realize that they’re taking on more risk than they should. I’ve met with potential clients who consider themselves "conservative investors" only to find that 95% of their portfolio is in stocks or stock funds. That's a risky position to be in, especially as market volatility looms.
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3: Consider Diversifying Beyond Growth Stocks
If you've been heavily invested in growth stocks, particularly in the tech sector, you might want to think about diversification. The "Magnificent Seven" (the seven largest companies in the U.S.) have been driving market gains, but they’re also vulnerable to the current volatility. While these stocks could still perform well in the future, it might be time to reduce your exposure.
A diversified portfolio should include a mix of growth stocks, dividend-paying stocks, and smaller or mid-sized companies. This type of balanced approach can help smooth out returns and offer some protection against sector-specific downturns.
A diversified portfolio may have underperformed recently, but it’s a strategy that can help you navigate market uncertainty with more stability.
4: International Stocks
With the ongoing tariff situation, international stocks could see some benefits, especially those companies that do business outside of the U.S.
If a company isn't heavily impacted by tariffs, it might be a good opportunity for investors looking for alternatives to U.S.-focused stocks. However, investing internationally comes with its own challenges, particularly given geopolitical issues like the war in Ukraine, which have affected global markets in recent years.
Despite these challenges, you may want to consider slightly increasing your international exposure. U.S. stocks have outperformed their international counterparts for years, but global diversification remains a valid strategy to help mitigate risk.
5: Don’t Try to Time the Market
Timing the market is a risky game. While it might seem like a good idea to sell when you anticipate a market downturn, it's nearly impossible to predict market movements accurately.
If it were easy, everyone would do it. Remember that for every seller, there needs to be a buyer. Trying to time the market can hurt your long-term returns and lead to poor decisions.
Instead, focus on staying the course. Stick to the principles of asset allocation and diversification. Understand your goals and your risk tolerance, and be patient. The best way to make money in the market is by staying invested for the long haul, not by jumping in and out based on short-term movements.
ALWAYS REMEMBER
It’s important not to panic. Market downturns are part of the investing landscape. The key is to stay calm, stick to your strategy, and focus on your long-term goals. If you’re investing for retirement, this money will support you in the future, and it’s meant to grow over time, not to be pulled out due to short-term fluctuations.
As we head into the rest of 2025, remember: market volatility is nothing new. Stick to a diversified, well-balanced portfolio, and focus on your long-term objectives. By doing so, you can weather any storm that comes your way and stay on track to reach your retirement goals.
Stay the course, and keep investing with confidence!
If you have a question or topic that you’d like to have considered for a future episode/blog post, you can request it by going to www.retirewithryan.com and clicking on ask a question.
As always, have a great day, a better week, and I look forward to talking with you on the next blog post, podcast, YouTube video, or wherever we have the pleasure of connecting!
Written by Ryan Morrissey
Founder & CEO of Morrissey Wealth Management
Host of the Retire with Ryan Podcast