Think before bailing out of the stock market, experts say

A global trade war sparked by President Trump’s tariffs has plunged the U.S. stock market into a spiral that hasn’t been seen since the beginning of the coronavirus pandemic. And while losing money never feels good, financial experts say investors should pause before bailing out.

The S&P 500 ended the week with a loss of 9.1% after it fell again on Friday. It was the sharpest weekly drop since March 2020, The New York Times reported.

Investors had already pulled $25 billion out of the market in the two weeks before Trump announced the tariffs on Wednesday, according to The Times.

Financial experts typically advise patience amid the turbulence. The S&P 500 has recovered from previous downturns, including after the Great Depression, the dot-com bust and COVID, The Associated Press reported. 

No one knows how long it could take the market to recover this time, but experts recommend investors begin thinking about how to reduce risk by diversifying their portfolios.

“It’s hard to roll with the punches when some days you feel like your portfolio is getting pummeled,” Brian Jacobson, chief economist at Annex Wealth Management, told The Associated Press. “But those moments should pass. A diversified strategy that is thoughtfully adapting to changing circumstances can’t prevent the punches, but it can soften the blows.”

Older investors or retirees often can’t afford to wait on a long recovery. They may need to consider reducing their spending or moving cash into more stable investments like money market funds and short-term Treasury securities, The New York Times reported. 

But a strategy of bailing out now and jumping back in when things improve isn’t wise, experts said. And this sudden drop may be the worst time for investors to follow their impulses, they said.

“It is dangerous for you — unless you can read what is going to happen next in the political world, in the economic world — to make a decision,” Meir Statman, a professor of finance at Santa Clara University, told CNBC.