Experts Weigh In on Navigating Trumpcession and Economic Anxiety

Every time the Trump administration rolls out a new announcement, it often feels like the U.S. economy is on an endless rollercoaster ride.

Consider the ongoing saga of Donald Trump’s tariffs. Just this week, he declared a 25% additional tariff on nearly all goods imported from Mexico and Canada, along with a 10% additional tariff on imports from China, leading to a sharp decline in the stock market.

However, just a few days later, Trump changed his approach and announced a temporary pause on many tariffs for a month on imports from Mexico and certain goods from Canada.

During his address to Congress on Tuesday, Trump admitted that his tariffs might create “a little disturbance.”

For everyday consumers in the U.S., the impact feels much more significant. Prices for common items like eggs are rising in grocery stores and retailers, forcing people to adjust their budgets.

If you’re feeling perplexed and anxious about how Trump’s economic policies affect your finances, you are not alone. However, there’s no need to panic. HuffPost consulted with personal finance experts and an economist to address the pressing questions many are grappling with and how to navigate them.

According to reports, when consumers cut back on spending, the economy takes a hit. Right now, reports indicate that consumer spending is declining.

Jesse Rothstein, an economist from the University of California, Berkeley and former chief economist at the U.S. Department of Labor, noted that some indicators used by the Atlanta branch of the Federal Reserve to forecast economic trends have recently turned significantly negative, prompting a sharp reduction in their forecasts.

In its March report, the Atlanta branch of the Federal Reserve projected a 2.8% contraction in the economy, contrasting starkly with previous forecasts that anticipated a growth rate of 4% from January to March. Additionally, declining consumer confidence signals an economic slowdown.

Rothstein expressed concern that we are “genuinely at risk for a recession” and emphasized that a significant risk factor lies in the federal government’s actions, particularly the “Department of Government Efficiency’s” initiative to cut thousands of federal jobs to reduce costs.

“That leaves a lot of people unemployed, who will be cutting back on vacations, missing house payments, and letting go of services like gardening,” Rothstein elaborated. “This creates ripple effects across the economy, affecting hotels, service providers, and restaurants.”

Rothstein pointed out that the factors leading to the 2008 recession differ from those driving the current economic turbulence: “The 2008 crisis was primarily driven by issues within the housing market and the financial system. Today’s instability appears to stem from deliberate government decisions,” he said.

While it’s challenging to predict the duration of a potential recession, Rothstein stressed the importance of recognizing that uncertainty influences consumer behavior. He explained that Trump’s “policy chaos” is fostering uncertainty, which in turn leads to decreased consumer spending and business investment. “People reduce their spending due to worry, and that’s how recessions can develop,” he said.

Given the current economic uncertainty, the stock market has experienced unsettling declines. However, making significant investment decisions based on short-term stock market fluctuations can be erroneous for your long-term portfolio and accounts like your 401(k).

“A drop in the market one day doesn’t indicate a collapsing economy. If you have years or decades before retirement, the current situation is just a minor blip,” advised financial educator Tess Waresmith. “The worst mistake is to panic and liquidate your investments or halt your contributions.”

Waresmith cautioned that many individuals prematurely withdraw their funds, hoping to wait until the market feels more stable to invest again.

However, research demonstrates that trying to time the market often leads to investor failure. A 2023 report by Charles Schwab analyzed over 78 distinct 20-year periods and discovered that timing investments on the market is nearly impossible for most people.

“According to our study, the best strategy for long-term investors is to assess their desired stock market exposure based on their goals and risk tolerance and to consider investing as soon as possible,” the report concluded.

While it’s advisable not to take drastic measures with your investments, remaining inactive may not be wise either. For those who have available capital to invest, seizing opportunities when stock prices are low can be beneficial.

“A market downturn can be advantageous—it offers the chance to purchase quality investments at a lower price,” Waresmith suggested. “When you invest consistently, you acquire more shares or portions of companies for the same amount, which can significantly increase your wealth when the market rebounds.”

Moreover, economic instability in the U.S. might present an opportunity to diversify your portfolio internationally. If tariffs persist, consider incorporating more international stocks, as certified financial planner Luis Rosa advised. “Markets in Europe and Japan, for instance, are likely to perform well in the future.”

Your 401(k) retirement account may exhibit notable fluctuations amid economic volatility. Rosa mentioned that several of his clients relying on their retirement savings have reached out in concern about Trump’s recent actions.

However, it is crucial to avoid making hasty decisions driven by fear. In most situations, “it’s wise to resist the urge” to make immediate changes, Rosa advised, as historically, “the market trends upwards more often than it declines.”

If you are younger, this might be an “opportune moment” to invest more aggressively while benefiting from employer matching contributions.

When setting up a 401(k), you can customize your investment portfolio to align with your risk tolerance and goals. For those early in their careers and planning for retirement many years down the line, aggressive investment typically means allocating more funds to stock funds, which might be volatile in the short term but can yield favorable returns over time.

On the other hand, for individuals nearing retirement, it might be prudent to rebalance portfolios towards less aggressive, lower-risk investments that tend to be more stable, such as Treasury bonds, which exhibit less volatility compared to stocks, according to Rosa.

As retirement approaches, “you can sustain a substantial portion of your portfolio within the market through its fluctuations while designating a portion as a buffer with steadier investments like bonds,” Rosa added.

Investing in bonds may offer slower growth, but they are a particularly secure investment method,” remarked Jen Hemphill, an accredited financial counselor. However, she advises consulting with a financial professional prior to adjusting your portfolio.

Regardless of the likelihood of an upcoming recession, experts recommend building your emergency savings fund as a precaution.

To determine how much you need to save, start by analyzing your regular expenses. Rosa suggests reviewing the last three months of credit card statements to identify any unused subscriptions.

Planning a major purchase? If you’re in the market for a new vehicle, it might be wise to make your purchase before tariffs take effect.

You don’t have to eliminate leisurely activities like vacations; just confirm that your travel arrangements have cancellation policies in place in case job losses occur, as many workers may face layoffs, according to Rosa.