How to Protect Your Portfolio From Falling Stocks After Trump’s Tariffs

• Stocks fell Monday morning after President Trump signed orders for higher import tariffs.
• Avoid panic-selling or drastically changing your investment strategy based on short-term volatility.
• Diversification and a long-term strategy can mitigate risks from market volatility.

Don’t panic, and keep your hands off your long-term investments.

Stocks plummeted Monday morning in an early market sell-off after President Trump signed orders for higher import tariffs on three of the largest US trading partners: China, Canada, and Mexico. Consumer prices are expected to increase, and investors are concerned that the tariffs will damage internal economic growth.

Upon opening, the Dow Jones fell 1.25%, the S&P 500 dropped 1.5%, and the Nasdaq dropped 2%.

Whether you’re a DIY investor or use one of the best robo-advisors, watching stocks slump and market outlooks turn sour can be hard to ignore. However, panic-selling or implementing a whole new investment strategy will only hurt your growth potential more.

Here’s how to mitigate loss in your portfolio despite falling stocks.

1. Don’t panic-sell

While your knee-jerk reaction to a market downturn might be to sell, trading impulsively usually does more harm than good for the average person. Panic selling often backfires, locking in losses that could have recovered with time.

Properly diversified portfolios are designed to weather short-term volatility without sustaining a significant loss. Fixating on the short-term fluctuations and emotionally selling in response may damage your long-term investment goals. You’re better off doing nothing.

“The optimal investment approach, consistent across all asset classes, is a buy-and-hold strategy with a long-term perspective,” Stephen Jury, Global Commodity Strategist for J.P. Morgan Private Bank, previously told Business Insider. “This strategy aligns with the principles applied to stocks and bonds. Time in the market always beats timing the market.”

The current market fluctuations stem from the new import tariffs and anticipated increases in consumer spending. Investor confidence has diminished, but this won’t always be the case. Already, the major indices have begun rebounding from Monday morning’s initial plunge.

“Investing isn’t about the big wins,” Corbin Blackwell, senior financial planner at Betterment, previously told BI. “There’s not enough certainty in any portfolio to only benefit from the upside. It’s always a risk, return trade-off.”

2. Make sure you’re diversified

If your portfolio took a hit, it may be a sign that you are not as diversified as you think and should seek greater market exposure. While some loss is inevitable, it shouldn’t jeopardize your financial security.

Diversifying your investments across various asset classes and market sectors allows you to capitalize on the strengths of areas of the market performing while lessening the impact of downturns in others.

For example, auto companies like Ford and General Motors are linked to Canada and Mexico and took a major hit, with stocks dropping 4.5% and 7.5%, respectively. Someone who is primarily invested in the auto industry likely experienced a greater loss of value than an investor who is diversified in healthcare, financials, and real estate.

“Just having as many stocks as you could possibly pick is not proper diversification,” Blackwell said. “When you add a stock or bond to your portfolio, you’re either keeping the risk the same for potentially better returns or decreasing risk while maintaining the same potential for return.”

“You don’t need to spend a lot of money to have a diversified portfolio,” Blackwell continued. “You can buy a share of an ETF, which is already diversified in and of itself. But you shouldn’t just buy one ETF, either.”

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3. Know what you’re investing in and why

A shift in the market can provide ample opportunity to revisit your investment strategy and ensure you are on track to meet your goals. Whether you handle your investments yourself or use the services of a financial advisor, you should know what you’re investing in and its purpose in your portfolio.

Tom Graff, chief investment officer at Facet, previously warned BI against piling money into an account if you don’t know how it is being invested. He recommends writing down your investment decisions so you can easily review and reevaluate over time. This can help prevent emotional trading and help you retain a long-term perspective.

Later, when you revisit your investment strategy and rebalance your portfolio, you can more easily assess your current assets and whether they serve you.