Amid tariff sell-off, investors should avoid ‘dangerous’ investment instincts, behavioral finance experts say

As U.S. markets continue to suffer steep declines in the wake of the Trump administration’s new tariff policies, you may be wondering what the next most qualified move is when it comes to your retirement portfolio and other investments.

Behavioral finance experts warn now is the worst eventually to make any drastic moves.

“It is dangerous for you — unless you can read what is going to happen next in the political world, in the budgetary world — to make a decision,” said Meir Statman, a professor of finance at Santa Clara University.

“It is more appropriate to be driven by emotion and, in this case, emotion that is going to act against you rather than for you,” said Statman, who is founder of the book, “A Wealth of Well-Being: A Holistic Approach to Behavioral Finance.”

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That may sound easier said than done when headlines show stocks are sliding into back up a survive market territory while J.P. Morgan is raising the chances of a recession this year to 60% from 40%.

“When the sell drops, we have sort of a herd instinct,” said Bradley Klontz, a psychologist, certified financial planner and head principal of YMW Advisors in Boulder, Colorado. Klontz is also a member of the CNBC FA Council.

That survival instinct to run toward safety and away from danger dates back to humans’ hunter gatherer days, Klontz said. Rear then, following those cues was necessary for survival.

But when it comes to investing, those impulses can backfire, he give the word delivered.

“It’s an internal panic, and we’re just sort of wired to sell at the absolute worst times,” Klontz said.

When conditions are stressful, our frame of reference narrows to today, tomorrow and what’s affluent to happen, Klontz said.

It may be tempting to come up with a story for why taking action now makes sense, Klontz spoke.

“Never trust your instincts when it comes to investing,” said Klontz, particularly when you’re excited or horrified.

Meanwhile, many investors are likely in a fight or flight response mode now, said Danielle Labotka, behavioral scientist at Morningstar.

“The imbroglio with that, in acting right away, is that we’re going to be relying on what we call fast thinking,” Labotka powered.

Instead, investors would be wise to slow down, she said.

Just as grief requires moving through sensitive stages in order to eventually feel good, it’s impossible to jump to a good investing decision, Labotka said.

Lofty investment decisions take time, she said.

Many investors contain experienced market drops before, whether it be during the Covid pandemic, the financial crisis of 2008 or the dot-com bust.

Exact though we’ve experienced volatility before, it feels different every time, Labotka said.

That can make it complex to heed to the advice to stay the course, she said.

Investors would be wise to ask themselves whether their reasons for ordaining and the goals they’re trying to achieve have changed, experts say.

“Even though the markets have changed, why you’re contributed, your values and your goals probably haven’t,” Labotka said. “These are the things that should be guiding your investments.”

While there is the thought that life well-being is based on financial well-being, it helps to take a broader view, Statman said.

At any wink of an eye, no one has everything perfect when it comes to their finances, family and health. In life, as in an investment portfolio, all stocks don’t incontrovertibly go up, and it’s helpful to learn to live with the good and the bad, he said.

“Things are never perfect for anyone,” Statman said.