The U.S. and global stock markets have been hit hard since President Donald Trump announced his latest tariffs on April 2. The so-called “Liberation Day” saw the introduction of blanket 10% tariffs on all imported goods, and additional import taxes placed on 60 other countries.
In the worst week for U.S. stocks since the markets crashed in 2020 during the COVID-19 pandemic, Dow Jones closed on Friday 2,000 points down, the S&P Index plunged 6%, and Nasdaq dipped almost 6%.
The volatility of the market has risen significantly, causing concern from investors and businesses alike.
There has also been a surge in concerns being voiced by people worried about the impact on their 401(k), as many have noticed a dip in their investments.
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Here’s what you need to know about how the economic turmoil resulting from Trump’s tariffs will affect your 401(k) and what you should do moving forward.
How is your 401(k) affected by the tariffs?
A 401(k) is an employer-sponsored retirement plan where a person has the option to make contributions that are deducted from their paycheck. In some cases, the company will match your contributions up to a certain percentage of your salary.
The value of 401(k) accounts is closely tied to fluctuations in the stock markets, as the portfolio allows you to invest in assets which are directly tied to the market’s performance. As such, when the stock market fluctuates, so too does a 401(k). With a 401(k), you carry all the risk because the investment decisions are yours.
With such extreme dips in the stock market, some Americans are seeing their retirement savings take an intense hit.
Remarking on the turbulence, Teresa Fort, associate professor of business administration at Dartmouth, says: “The U.S. market has outperformed everywhere for the last couple of decades, but I don’t know if it’s clear that this is going to continue… the entire world economic order has been shifted, and people are going to need to rethink what [their] optimal allocations should be.”
On April 3, when aboard Air Force One, Trump was asked by a reporter about the rising concerns among Americans and whether he has checked his own 401(k) since his tariff announcements stunned the stock market.
Trump said: “I haven’t checked my 401(k).” The President also doubled down on his belief that though the markets look bad now, his tariffs will ultimately be a good thing for the economy. “I think our markets are going to boom; we’ve got to give it a little chance,” he said.
The President once again shared his optimism about the economy in an update he posted on his social media platform, Truth Social, on Saturday, April 5. “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,” he said.
Read More: Why Economists Are Horrified by Trump’s Tariff Math
What do experts advise you should do about your 401(k)?
Brad Clark, founder and CEO of Solomon Financial, says that this is not the time to panic and take your money out of savings. “It’s scary,” he admits, but the response to fear, in his professional opinion, is to stay the course—especially if you are a younger investor preparing for future retirement.
“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.”
For people two or three years from retirement, Clark says their portfolios should already be less risky, and they should not have full market exposure to their investments.
However, for those who are still 10 or more years away from retirement, there could be positives to note. “What a great buying opportunity,” Clark argues. “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’s advice to those people—who are a decade or more away from retirement— is to “continue to invest like you’ve always invested,” and he is confident that this will pay off in the long run.
In a column for the Washington Post, personal finance columnist and author Michelle Singletary echoed this sentiment. “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,” she said.
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Laurence Kotlikoff, professor of economics at Boston University, takes a more cautious approach for people of all ages.
He recommends not investing in anything risky now, instead starting back from a safe investment position and eventually building your investment portfolio back into something more risky. By starting conservatively and building up, Kotlikoff says that investors can save themselves from pain later on.
“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 recommends people consider doing what he and his wife did soon after Trump’s Inauguration Day. In preparation of potential market fluctuations, they built a TIPS ladder, which is a portfolio of Treasury Inflation-Protected Securities.
TIPS are U.S. government bonds that adjust for 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 echoes Kotlikoff’s caution, noting that while some economists are saying to stay the course as usual, these are not usual times, and she thinks that it is likely that the markets are only going to dip further. For her own mother, who relies on her 401k, Fort has reduced her exposure to the market as much as possible.
“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.”
Overall, it’s worth noting that expert advice varies depending on the age of the person with the 401(k) and what stage they’re at in their working lives. For example, Fort did not take the same measures for her own financial portfolio as she did for her mother’s, since she is younger and has more time until retirement. Across the board, expert guidance tells us not to panic and not to make any rash financial decisions.
