Tariffs and Turmoil

April 8, 2025

Dear Clients:

During our meetings at the beginning of the year, one of the most common questions was: “What do you think will happen in the markets this year?” Given the shifting political landscape, that question has been top of mind for many.

The honest answer? Predicting short-term market outcomes is nearly impossible. That’s why investors and advisors who favor a more passive, long-term approach—like we do—often say, “We don’t know, and it’s best to tune out the noise.” And we stand by that philosophy. While some forecasts may prove accurate, even a broken clock is right twice a day. The reality is, even the best investors can only hope to get the general direction right over time.

But that doesn't mean we should simply throw up our hands, buy index funds, and hope for the best. That would be complacent. There are important strategic decisions investors need to make—most notably around long-term asset allocation. These decisions should be thoughtful, proactive, and grounded in a plan—not knee-jerk reactions to daily headlines. A well-constructed plan anticipates periods of volatility and is built to weather the inevitable storms.

We openly acknowledge: we don’t know exactly what will happen next. Fortunately, our investment strategy doesn’t depend on making perfect predictions. Instead, we focus on preparing for a wide range of possible outcomes over the medium to long term. We design diversified portfolios intended to help clients navigate uncertainty with confidence.

At the start of this year, we didn’t attempt to predict specific events. Rather, we anticipated a headline-driven environment—one where markets might swing rapidly in response to news and policy announcements. So far, that expectation is proving accurate (granted it seemed like an easy prediction to make!), and we suspect there are more twists and turns ahead.

Importantly, volatility doesn’t just mean sharp declines—it can also mean surprising rallies. The market could go either way. Consider the range of possibilities: we might see a steep drop, or we might experience a strong rebound like we did following the COVID-related selloff in March 2020. In periods like this, it’s critical not to be caught off guard in either direction.

In our view, the best defense is a solid financial plan based on reasonable assumptions—and a portfolio that’s truly diversified. By diversification, we don’t mean simply owning the S&P 500. That may reduce the risk of individual U.S. stocks, but it doesn’t protect against broader market or economic shifts. Real diversification involves owning assets that behave differently under different conditions—assets that don’t all move in lockstep.

We also think about diversification across time horizons. Daily market correlations matter less to us than how different asset classes perform over multi-year periods. Still, on an emotional level, it’s comforting to have some elements of your portfolio zig when others zag—especially during turbulent times.

That’s why we build long-term strategic portfolios that incorporate a wide array of asset classes. Our hope is that regardless of what’s happening in the world, there’s always something working. Over time, this approach supports the long-term growth our clients need to meet their retirement and financial goals.

Take current headlines around tariffs, for example. Will they prove to be a short-lived negotiating tactic, or are we witnessing a structural shift in global trade with lasting consequences? If it’s the former, this could be another “buy the dip” opportunity. If it’s the latter, we may see either inflation—if goods become more expensive—or deflation, if economic activity contracts. Trade uncertainty might also impact demand for U.S. assets, shift capital flows to foreign markets, or influence the strength of the U.S. dollar. Each scenario has different implications for investors.

But again, the honest answer is: we don’t know. And even if we could predict the initial outcomes with perfect accuracy, the ripple effects would still be incredibly complex.

Understandably, all this uncertainty can tempt investors to move to cash and sit on the sidelines. But historically, that’s been a risky strategy. It requires timing the market successfully—not just when to exit, but when to re-enter. And when inflation is a potential risk, excessive cash holdings could erode purchasing power rather than provide protection.

A better approach? Stay invested with a well-balanced, broadly diversified portfolio. That’s why our portfolios go beyond U.S. stocks and bonds. We include international equities, inflation-protected bonds, real estate, gold, managed futures, tail risk strategies, and Bitcoin.

Each plays a unique role. International stocks currently appear more attractively valued than U.S. counterparts and could benefit from shifting investor sentiment. Gold and Bitcoin may perform well if deflationary risks rise—or if inflation surprises to the upside. Both are monetary assets with limited supply, which can be appealing in times of monetary uncertainty and when investors are looking for geopolitically neutral assets. Tail risk strategies may offer protection during sharp market downturns, while managed futures often capture major trend shifts. An inflation-protected bond ladder can offer reliable cash flow hedged to inflation, serving as a stabilizing foundation for retirees, regardless of market turbulence and even a protracted bear market.

Despite the turmoil so far this year, we’re already seeing the benefits of this diversified approach. While U.S. equities have struggled, a global stock allocation has softened the blow. Bonds—both nominal and inflation-protected—have held up well. Gold is a top performer, continuing its strength from last year. Bitcoin has declined, but it’s shown notable resilience relative to past drawdowns.

It will be fascinating to see how the rest of the year unfolds. Much can change, and quickly. But based on what we know—and the safeguards we’ve built into our planning and portfolios—we’re sleeping well at night, and think you should be too. Our financial plans are rooted in realistic return assumptions and prudent spending guidelines. And our portfolios are designed not just to survive uncertain times, but to take advantage of the opportunities they often present.