The Nasdaq Composite is down big to start 2025. Through the first three months, it fell by more than 10%. Its losses continue to pile up as investors sell over concerns that a recession is coming this year as the result of tariffs and trade wars potentially crippling businesses across the globe.
Just how bad of a start is this for the Nasdaq? And what should investors do amid this free fall? Let's take a closer look at what this all means.
The Nasdaq rarely gets this worrisome
Over the first three months of 2025, the Nasdaq declined by 10.4%. That would be a bad performance for an entire year, let alone just a single quarter. A look back at how the Nasdaq performed going back 25 years, and there were only three other times where it got off to such a poor start:
- 2020: It was down more than 14% due to the pandemic.
- 2008: It fell by 14% amid the Great Recession.
- 2001: It declined by 26% as a result of the dot-com crash.
While there haven't been many instances of such a large decline for the Nasdaq during the first quarter of the year, when they've happened, it's normally been the result of significant adversity facing the markets.
But here's some good news: In two of those three instances, the Nasdaq's gains after March were positive. The one exception was in 2008 when the recession was still in its early stages.
What happens from here on out is anyone's guess. It'll come down to the duration and severity of the tariffs being imposed here and abroad.
What should investors do?
The Nasdaq ended up rallying in 2020 thanks to government stimulus and other mitigating government actions. In 2001, the dot-com crash was in its latter stages, so investors started to see some light at the end of the tunnel. But whatever is taking place now is likely either temporary (assuming President Trump strikes deals with countries and/or backs off from tariffs) or in its early stages. Given the president's tough stance on tariffs and plan to launch an external revenue service, I believe the latter is the more probable scenario.
But you should resist the urge to try to time the market or predict what the government will do in the weeks and months ahead. Instead, you may want to think about what's best for you.
If you're in retirement or close to it and want some safety, you may want to consider putting money into bonds, Treasury bills, or dividend stocks that have limited exposure to tariffs. Preserving capital will be important, especially since it's impossible, at this stage, to know how bad the sell-off may get.
If you have at least 10 years to go until retirement, you may want to consider putting money into value-focused exchange-traded funds (ETFs), which can be good options for the long term, given their focus on valuation. A good example of such a fund is the Vanguard Value Index Fund ETF (VTV 0.84%), which charges an expense ratio of just 0.04% and averages a modest price-to-earnings multiple of 20 (the S&P 500, by comparison, currently trades at nearly 22 times trailing earnings).
The ETF also has just 8% of its holdings tied up in tech stocks, with its biggest sectors being financials (22%), healthcare (16%), and industrials (15%). While those stocks may still fall in value, their declines may be more modest compared to tech stocks, many of which climbed to significant premiums before this latest downturn. Year-to-date, the ETF's losses have been modest compared to the Nasdaq.
Data by YCharts.
If you still have a lot of investing years left (20-plus years), then now may be an optimal time to load up on quality growth stocks. While many of them may face rough paths ahead, you can also find some considerable discounts right now. As long as you're willing to be patient with them, buying them today can set you up for significant gains in the long run, as the market is likely to recover, and when it does, these are the types of stocks that may have the most room to run.
Plan, don't panic
It can be an unnerving time to be hanging onto stocks, but selling out of the market isn't the path you need to take. There are investments and ways to mitigate your risk if your goal is to preserve your capital. There are also opportunities amid the sell-off to find great long-term buys.
If you give into the panic and make a rash decision, you could end up regretting it years from now. Planning ahead and mapping out a strategy that's best for you is always going to be your best course of action.
