Tariff worries are rattling stocks. How investors can prepare for the next big market upset

The Trump administration’s tariff policy sent stocks on a roller-coaster ride on Monday, and further tumult could be ahead for investors. On Monday, the major averages saw a sharp swing on the heels of President Donald Trump signing an order over the weekend that would impose 25% tariffs on Mexico and Canada, plus a 10% duty on China. At its session low that day, the Dow Jones Industrial Average slid more than 660 points – only to rapidly cut its losses to about 123 points after Trump said there would be a one-month pause on Mexico tariffs . The president also reached an agreement with Canadian Prime Minister Justin Trudeau that delays those duties for at least 30 days. .DJI 5D mountain The Dow Jones Industrial Average over the past five trading days It could be a while before stocks calm down, too. “Markets may remain volatile until clarity on tariffs becomes evident,” said Bank of America quant strategist Nigel Tupper in a Tuesday note. Broadly fleeing equities when the ride gets rocky hinders long-term returns, as investors must be right about when they sell out and when they get back in – and they often aren’t. But it doesn’t hurt to kick the tires on your portfolio and develop a plan for those dramatic swings. “It’s a time to look at your portfolio, and that’s an ongoing regular hygiene piece of it,” said Joel Dickson, global head of advice methodology at Vanguard. Indeed, there is typically a market correction – that is, a 10% decline from the highs – once a year , according to Bank of America. “If those corrections are making you lose sleep, it should be a signal that you may need to reevaluate your risk tolerance,” Dickson said. Take your temperature A sharp sell-off could be investors’ cue to check in with their goals, their time horizon and their ability to stomach a big swing in portfolio values. “The practical steps, if you will, are the tried-and-true ones that we’re often talking about,” said Dickson, noting that investors need to focus on what they can control. “How to diversify among asset classes to weather ups and downs, [how to] control costs, and how comfortable are you with the risk you take?” If you’re working with an advisor, you can find other ways to take advantage of wild market swings. For instance, tax loss harvesting – or selling losing positions and using those losses to offset taxable capital gains elsewhere – offers investors a silver lining in a big sell-off. Reinvest the proceeds, but make sure you avoid violating the wash-sale rule. The IRS will block the loss if you buy a “substantially similar” security to the one you sold within 30 days before or after the sale. Rebalance and diversify Last year’s Big Tech winners stumbled out of the gates in 2025, with the tech sector down more than 3% year to date. .GSPT 1Y mountain The S & P 500 Information Technology Sector in the past year Investors who want to level out some of that volatility and whose goals call for portfolio income may want to turn toward dividend payers. “At a time when the market is cooperating, you can benefit from capital appreciation,” said Marguerita Cheng, certified financial planner and CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland. “And you get dividend income in times when the market doesn’t cooperate. If you reinvest the dividend income, it kind of levels out the volatility.” On a sector level, Gargi Chaudhuri, BlackRock’s chief investment and portfolio strategist, Americas, highlighted financials and health care as corners of the market that can offer diversification and solid earnings growth. Fixed income is also presenting an opportunity, where investors have attractive yields and don’t have to reach down in quality or too far out in duration – which is a measurement of a bond’s price sensitivity to rate fluctuations – to get it. When it comes to core fixed income, Chaudhuri’s team prefers the short end of the yield curve, through the 3- to 7-year belly. “We think of income-generating potential, especially in the front end of the curve – you don’t need to take a lot of interest rate risk,” she said. Offerings that fit that bill include the iShares 3-7 Year Treasury Bond ETF (IEI) and the iShares Flexible Income Active ETF (BINC) . IEI has a 30-day SEC yield of 4.39% and an expense ratio of 0.15%, while BINC has a net expense ratio of 0.4%, and a 30-day SEC yield of 5.62%. Double check cash reserves Even as it’s imprudent to flee stocks and hide in cash, it doesn’t hurt to make sure you have enough set aside for emergencies – and for opportunistic buying in sell-offs. The Crane 100 Money Fund Index has an annualized seven-day current yield of 4.19%, meaning that individuals parking cash in their money market funds are still being handsomely rewarded for it. Further, high-yield savings accounts are still offering APYs exceeding 4%. The rule of thumb for emergency funds calls for three to six months’ worth of living expenses, though some advisors have called for 12 to 18 months. “Interest rates on high-yield savings may have gone down a little bit, but they are still higher than they were in past years,” said Cheng. “Make sure you have cash reserves for any emergencies, contingencies and opportunities – that’s what I’ve been telling people.”