Tariffs, Inflation, Market Volatility – Oh My!

As we move through the first quarter of 2025, we’ve had several clients, colleagues, and friends reach out with questions about recent market movements and the impact of tariff discussions on their personal financial plan. We’d like to address your most common questions and provide some perspective on what this means for your financial plan.

Understanding Tariffs

With all the talk of tariffs in the news, it’s leaving many investors asking:

What, exactly, are tariffs? And should we be concerned?

Tariffs are, essentially, taxes imposed on imported goods. When a country implements tariffs, importers are required to pay these additional fees when bringing specific foreign products into the country. These costs are typically passed along to businesses, and, eventually, to consumers.

Market Impact and Recent Volatility

You’ve likely noticed the markets have been up and down over the past few weeks. This volatility is partially driven by uncertainty surrounding tariff policies and their potential economic impact. Markets (read: investors) dislike uncertainty, which is reflected in the day-to-day fluctuations.

When tariffs are implemented, they can affect different sectors in various ways:

• Companies that rely heavily on imports may face higher costs
• Domestic manufacturers might benefit from reduced foreign competition
• Consumer goods prices could increase as businesses pass costs down

Remember that market volatility is normal and expected, especially during policy shifts. The recent yo-yo pattern reflects investors processing new information and adjusting expectations.

Inflation Considerations

With inflation sitting just under 3% as of early February 2025, there’s some legitimate concern about whether tariffs could push prices higher. Historically, tariffs can contribute to inflationary pressures as the cost of imported goods rises.

However, the actual impact depends on several factors, including:

• Which specific goods are targeted
• The magnitude of the tariffs
• How businesses respond (absorbing costs vs. passing them to consumers)
• Monetary policy responses from the Federal Reserve

Our Approach During Market Uncertainty

We’re actively monitoring these developments and taking measured steps to position your portfolio appropriately. Here’s what we’re doing:

1. Maintaining our long-term focus – Short-term volatility doesn’t change the fundamental principles of sound investing. We believe in long-term strategies, and that means limiting our reaction to short-term policies.
2. Diversifying portfolios across asset classes, sectors, and geographies to reduce concentrated risks.
3. Emphasizing low-fee, tax-efficient strategies to maximize your returns regardless of market conditions.
4. Strategic rebalancing as needed to maintain your target asset allocation, without making sweeping changes that could derail your plan.

What You Should Do

While market headlines can be concerning, we encourage you to:

• Maintain perspective – Remember your long-term financial goals. If you ever feel concerned, feel free to reach out to our team. We’re here to act as a sounding board and guide.
• Avoid the 24-hour news cycle that often amplifies short-term movements.
• Keep your emergency fund intact. Having appropriate cash reserves provides peace of mind during volatility. Often, we recommend clients have at least 6-12 months of living expenses in a cash reserve. It may make sense to have more than that if you’re closer to retirement, or would need those reserves in the near term.
• …But resist the urge to go to cash. Market timing rarely works and can seriously impact long-term returns. There’s a difference between having a sound emergency fund strategy, and going through a mass sell-off when the markets are down. Remember: it’s about time in the market, not timing the market.
• Reach out to your advice team with questions – That’s what they (we) are here for!

As always, we hope to be a resource for you whenever questions like this arise – we know that market volatility can be stressful (even when you feel confident with your long-range financial plan). Staying plugged into resources like the Gen Y Planning blog, or a trusted news source, can help you stay up to date while limiting the amount of content you’re taking in — which can help reduce some anxiety during market ups and downs.