Markets have responded to President Trump’s recent announcement of reciprocal tariffs on nearly all major trading partners with predictable volatility. On April 2, the S&P 500 declined over 3%, reflecting investor uncertainty about the impact of these new economic policies. For many watching the headlines, this market reaction might seem alarming – but those with well-diversified portfolios are experiencing a very different reality.

The Real Impact: Headlines vs. Your Portfolio

The financial headlines can be misleading. While the S&P 500 is down nearly 10% year-to-date, most of our clients with diversified portfolios have experienced a much smaller impact. In fact, many are pleasantly surprised during their investment reviews to discover their accounts have experienced minimal losses or even slight gains. This difference illustrates the power of proper diversification.

The Psychology Behind Loss Aversion

Why do market downturns cause such anxiety? The answer lies partly in what behavioral economists call “loss aversion” – the principle that the pain of losing $100, for example, is typically felt more strongly than the pleasure of gaining $100. This fundamental aspect of human psychology explains why investors might make irrational financial decisions, particularly during volatile periods. We often overreact to losses while undervaluing equivalent gains.

This tendency toward loss aversion means that even when markets are performing reasonably well overall, the segments that are declining can disproportionately impact our emotional well-being and decision-making.

Diversification: Your Best Defense Against Volatility

A well-diversified portfolio is designed to weather market uncertainty by spreading investments across various asset classes, industries, and geographic regions. When one segment of the market struggles, others may remain stable or even thrive. This approach doesn’t eliminate all risk, but it can significantly reduce the impact of market volatility on your overall financial picture.

The most dramatic roller-coaster experiences are typically reserved for those with concentrated positions in individual securities. We regularly observe that clients experiencing the most significant swings – sometimes losing 10% or more in a single day – are those with portfolios heavily concentrated in a single company or sector.

Embracing Uncertainty While Maintaining Perspective

Current global economic conditions feel particularly uncertain. Between geopolitical tensions, inflation concerns, and significant policy shifts like the new tariffs, investors crave stability and certainty, which seems to be in short supply.

However, volatility is an inherent part of investing. A 10%+ market correction, which we’ve witnessed this year, is actually a normal and expected event that typically occurs multiple times annually. While acknowledging the unique challenges of today’s environment, it’s essential to recognize that market fluctuations are both normal and necessary.

Many institutional investment firms and our own investment team maintain a cautiously optimistic outlook, anticipating that markets may end the year in positive territory despite the bumpy ride ahead.

The Path Forward

No one can predict with certainty what will happen with markets in the coming months; however, we can prepare for various scenarios through proper diversification strategies.

Our approach focuses on:

• Positioning portfolios to minimize downside impact when markets decline
• Ensuring you’re properly situated to benefit when markets rebound
• Creating balance across various asset classes to withstand different economic conditions
• Reducing concentration risk in any single security or sector

While headlines about market declines may cause concern, remember that a properly diversified portfolio often tells a very different story than the broad market indices. By understanding the psychological factors that influence our perception of market movements and maintaining a disciplined, diversified approach, investors can navigate volatile periods with greater confidence.

As Warren Buffett famously observed during the 2008 financial crisis, despite numerous wars, recessions, panics, and crises throughout the 20th century, the market demonstrated remarkable resilience over time.

The most successful investors are those who maintain perspective, focus on fundamentals, and remain committed to their long-term financial plans even during periods of uncertainty. When it comes to investing, preparation through diversification is often the best response to unpredictability. Ready to see how a diversified portfolio can better protect your wealth? Book a call with our team today to take the first step toward a more resilient financial future.

This material is distributed for informational purposes only. Investment Advisory services offered through Journey Strategic Wealth, a registered investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”). The views expressed are for informational purposes only and do not take into account any individual’s personal, financial, or tax considerations. Opinions expressed are subject to change without notice and are not intended as investment advice. Past performance is no guarantee of future results. Please see Journey Strategic Wealth’s Form ADV Part 2A and Form CRS for additional information.