The S&P 500 (^GSPC +0.84%), the Dow Jones Industrial Average (^DJI +0.02%), and the Nasdaq (^IXIC +1.71%) have been surprising investors daily with their movements, shifting rapidly according to news regarding President Donald Trump's tariff plans. The president earlier in the month announced a far-reaching set of tariffs on imports from countries worldwide, sending stocks tumbling as investors worried about the impact on U.S. corporate earnings and the economy. Since then, the U.S. paused the tariffs for 90 days to allow for negotiations, and he exempted electronics products from the duties -- at least temporarily. This initially spurred a rebound, though volatility remains.
Investors still are concerned about the final tariff plan and how it may weigh on the costs of U.S. companies. Many of them import raw materials and finished goods, meaning they will have to pay any applicable duties. So, the market may continue to be difficult as this tariff story unfolds. But here's some good news against this backdrop of stock market whiplash. There are five moves you can make right now to protect your portfolio.
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1. Try ETFs
If you haven't yet invested in exchange-traded funds (ETFs), now is a good moment to give them a try. ETFs allow you to instantly diversify across one or more industries as they invest in many stocks according to a particular theme -- for instance, growth stocks or biotech players. In today's tough market, diversification is a great idea -- if one particular industry suffers, diversification will limit the impact on your portfolio.
You might consider a broad ETF that tracks the performance of the S&P 500, such as the Vanguard S&P 500 ETF (VOO +0.82%). The benchmark has eventually overcome every market scare, delivering an average annual return of 10%. And always choose an ETF with an expense ratio of less than 1% to preserve your long-term returns -- the Vanguard ETF fits the bill, with an expense ratio of only 0.03%.
2. Favor companies that may benefit from tariffs
Tariffs aren't good news for U.S. companies in general. But some players could benefit to a certain degree. For example, the president's tariff on China and his ending of an exemption on lower-priced goods could make it much more expensive for Americans to order items from China-based companies, such as Shein. As a result, they could turn to Amazon or Etsy (ETSY +0.48%) more often.
NYSE: ETSY
Key Data Points
Etsy even said in its latest earnings call that it could be "a net beneficiary" if tariffs are focused on China. The e-commerce company, a platform connecting sellers of handmade goods with buyers, also said its sellers source most of their materials close to home -- another plus in an import tariff environment.
3. Go for established companies
In times of market turmoil, it's a great idea to buy shares of well-established companies that have proven themselves over time. We know, for example, that companies such as American Express or Microsoft have been around through other difficult times, from market crashes to recessions.
Players such as these that have a solid track record, along with earnings that remain strong, are well positioned to emerge from this crisis too and go on to win again over the long term. Many of them, due to recent declines, are trading for very reasonable valuations -- and that makes right now an excellent time to buy.
4. Choose "safe" players
What's a "safe" player? Part of the equation is being an established company, but safe players generally operate in a field that doesn't suffer as much as others during economic downturns -- such as healthcare. Patients need their treatments regardless of the economic setting. So pharmaceutical and medical device companies make good choices -- even if today, they too face the potential impact of tariffs, they still can count on patients steadily returning for medicines and procedures.
Another safe stock is one that offers you passive income, and that means now is the moment to add some dividend stocks to your portfolio. Go for Dividend Kings, or those with a long track record of dividend increases, as they've demonstrated they're committed to rewarding shareholders.
5. Think long-term
Finally, to keep cool during difficult market times, be sure to think long term. None of us like to see our portfolio's value drop before our eyes -- but remember that tough market times always are temporary, and you haven't truly lost if you haven't sold.
Quality stocks generally don't stay in the doldrums forever, so if you hold on for a period of five years, for example, you could score a win as their fortunes improve. That's why, when buying a stock or evaluating current positions, it's important to consider companies' long-term prospects. If they look positive, don't worry too much about short-term headwinds and instead focus on the brighter days ahead -- and all of this will help you make better investment decisions during any market environment.
