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As markets reel from the economic turbulence triggered by escalating U.S. tariffs under the Trump administration, investors are being urged not to let panic dictate their next move. Sharp declines in the stock market, fueled by fears of a trade war and a potential economic slowdown, have left many retirees and investors unsure of how to react.

But if you’re thinking of shifting your portfolio or pulling out of investments entirely—take a breath.

Behavioral finance experts warn that making big financial decisions during times of uncertainty is a recipe for regret.

Why You Should Pause Before Acting: The Psychology of Panic

“When you don’t know what’s coming next in the political or economic world, reacting emotionally is more likely to hurt than help,” says Meir Statman, professor of finance at Santa Clara University and author of A Wealth of Well-Being: A Holistic Approach to Behavioral Finance. “It's dangerous to let fear guide your financial choices.”

The temptation to act quickly in response to falling markets is part of our evolutionary wiring, explains Dr. Bradley Klontz, a financial psychologist and certified financial planner based in Boulder, Colorado.

“This is a survival response,” Klontz says. “We’re hardwired to run away from perceived threats. But when it comes to investing, that impulse can drive us to make the worst possible decisions—like selling at the bottom.”

Market Volatility: A Perfect Storm of Fear and Misinformation

Recent market data has only intensified investor anxiety. The S&P 500 dropped nearly 15% over the past month, slipping into bear market territory. Meanwhile, J.P. Morgan recently raised the odds of a U.S. recession in the next year to 60%, up from 40% just weeks earlier. Goldman Sachs, too, is forecasting slowed GDP growth and ongoing market turbulence into the second half of the year.

These headlines are understandably alarming. But acting on them may do more harm than good.

“People often narrow their focus to just today and tomorrow when things feel out of control,” says Danielle Labotka, behavioral scientist at Morningstar. “This makes us more vulnerable to fast thinking—the kind that prioritizes emotional relief over long-term strategy.”

The Investment Trap: Why Your Instincts May Mislead You

One of the biggest dangers in times like these? Trusting your gut.

“Never trust your instincts when it comes to investing—especially when you're scared or excited,” Klontz warns. “Those feelings are not helpful predictors of market movement. In fact, they often lead us to buy high and sell low.”

Research backs this up. According to a 2023 study by Dalbar, the average investor underperforms the S&P 500 by 4% to 6% annually, largely due to emotional decision-making.

In moments of volatility, most investors go into a “fight or flight” mode. That often leads to impulsive decisions that damage long-term growth—like liquidating retirement accounts or abandoning diversified portfolios.

What to Do Instead: A Smarter Approach to Market Declines

So, what’s the antidote to panic?

1. Pause and Reflect
   Before making any decisions, take a step back. “Ask yourself if your financial goals have truly changed,” Labotka advises. “For most people, the answer is no. Your long-term objectives—saving for retirement, building wealth, preserving assets—are still intact.”
2. Revisit Your ‘Why’
   Experts recommend reviewing your investment plan to ensure it aligns with your values and risk tolerance. If you invested with a 10- or 20-year horizon in mind, short-term volatility is expected—and should be weathered, not reacted to.
3. Avoid All-Or-Nothing Thinking
   Market drops don’t mean you have to pull everything out. Instead, consider whether rebalancing your portfolio or dollar-cost averaging into lower prices might benefit you long-term.
4. Lean on Professional Advice
   If you’re feeling overwhelmed, consult with a certified financial advisor who can help create a plan based on data—not emotions.

Perspective from Past Crises: We've Been Here Before

Many investors have lived through similar market meltdowns. From the 2008 financial crisis to the COVID-19 crash in 2020, the markets have seen—and recovered from—massive downturns.

In March 2020 alone, the Dow Jones Industrial Average plunged more than 10,000 points, yet it fully rebounded by the end of the year and reached new highs by 2021.

“Every crisis feels unique, but market history shows us recovery is more common than collapse,” says Statman.

A Broader View: Financial Well-Being Isn’t Everything

It’s also worth stepping back and evaluating your overall well-being—not just your financial metrics. “Life is never perfect,” Statman notes. “Even when the market is down, you might be healthy, have a stable job, or strong family relationships. Don’t let a temporary financial dip overshadow your bigger picture.”

He encourages investors to cultivate a sense of emotional resilience, reminding them that personal well-being goes far beyond portfolio performance.

Final Thought: Resist Reactivity, Embrace Strategy

In a climate filled with anxiety, it’s easy to feel like you have to do something. But the best investors are those who resist the urge to react emotionally.

“Investing isn’t about being right all the time—it’s about staying the course and making decisions based on your goals, not your fears,” Klontz says.

And while it might feel like standing still is risky, the bigger risk often lies in overreacting. In uncertain times, the most powerful move you can make is to stay grounded, stay informed—and stay invested.

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