This article is reprinted with permission from Esq. Wealth Management, Inc.
Recently, a new client told me that nearly all of his wealth is earning 4-5% while sitting in high-yield savings accounts and CDs. He is approaching 55, would like to retire, and recognizes that he needs enough assets that can last 30 or 40 years. Like many, he is concerned about outliving his money and hired EsqWealth to help him design his retirement, invest wisely, and plan for the future.
He said he knows that markets perform better over time and he knows that no one can time the market, but for the past few years he’s been worried about volatility stemming from tariffs, recession fears, and what he politely called “everything Trump is doing.” He’s not alone. In times of uncertainty, sitting on the sidelines feels safe — but that comes at a cost.
While past performance doesn’t guarantee future results, history offers valuable perspective. In this article, we’ll explore three important historical patterns: how sitting on the sidelines can cost investors over time, how markets have performed under different political parties, and how tariffs have influenced the markets. Then we’ll turn to two central considerations: (1) why trying to time the market is almost always a mistake, and (2) how to invest strategically when geopolitical and economic risks seem heightened.
Sitting on the Sidelines Has a High Cost
History shows that sitting on the sidelines is one of the most expensive forms of comfort. The U.S. market has returned 9.7% annualized since 1900, far outperforming bonds at 4.6%, and Treasury bills at 3.4%. When adjusting for inflation (approximately 2.9% over the same period), real equity returns are more than four times greater than bonds—and more than thirteen times greater than Treasury bills. That’s a meaningful difference when trying to fund 30 or 40 years of retirement.[i]
Markets Perform Regardless of Who’s in Power
Historically, the U.S. stock market has demonstrated resilience and growth regardless of which political party holds the presidency. Since the inception of the S&P 500 in 1957, the index has achieved a median compound annual growth rate (CAGR) of 9.3% during Democratic administrations and 10.2% under Republican administrations. These differences, while modest, are more reflective of prevailing economic conditions than party-specific policy. Investors are generally better off focusing on fundamentals and strategy, rather than trying to predict outcomes based on politics.[ii]
Tariffs Create Volatility—but Often Don’t Derail Growth
The imposition of U.S. tariffs has often caused immediate market pullbacks—but history shows that equities tend to recover.
Steel Tariffs (2002): When President George W. Bush enacted steel tariffs in 2002 ranging from 8% to 30%, the S&P 500 fell sharply, losing around $2 trillion in market capitalization. The Dow Jones Industrial Average didn’t fully recover until those tariffs were lifted in late 2003.[iii]
U.S.–China Trade War (2018–2019): According to research from the New York Federal Reserve, equity markets declined collectively by 11.5% on days when tariffs were announced—amounting to an estimated $4.1 trillion in lost value. And yet, by the end of 2019, U.S. markets hit new highs following a partial trade agreement.[iv]
The Market Doesn’t Wait for You
It feels intuitive: get out when things look bad, jump back in when things feel better. But by the time it feels better, the market has usually already moved. Read almost any of Warren Buffett’s annual reports and he’ll proudly tell you he can’t time the market and never tries. In April 2022, he said at the annual shareholder meeting, “We haven’t the faintest idea what the stock market is gonna do when it opens on Monday—we never have.” Another legendary investor, Peter Lynch, famously said, “Far more money has been lost by investors trying to anticipate corrections, than lost in the corrections themselves.”
Let’s look at some real numbers based on recent bull markets. Imagine you invested $1 million on February 1, 2020, split evenly between the S&P 500 (SPY) and Nasdaq-100 (QQQ). By March 23, after a 34% plunge, your account would have dropped to around $660,000. If you panicked and moved your money to CDs yielding 3.5% annually, your balance would have grown modestly to about $787,000 by early 2025. But if you had stayed invested? As of March 2025, that same portfolio would now be worth approximately $2.1 million, assuming reinvested dividends. That’s the power of staying the course.
Let’s take it further. Suppose Tom and Jerry each had $1 million to invest on January 1, 2000. When the markets opened, Tom invested evenly to track the S&P 500 and the NASDAQ stock market indices. Jerry, fearful of the dot-com bubble, stayed in U.S. Treasuries averaging 4% annually.
By October 2002, after a nearly 80% drawdown in the NASDAQ after the dot-com bubble burst, Tom’s account was worth about $250,000. Jerry’s was worth around $1.1 million. Tom thought he got into the market at the worst possible time, while Jerry thought he was brilliant by staying on the sidelines. But fast forward 25 years. Tom’s account today—left untouched and reinvested—would be worth approximately $10.92 million. Jerry’s? About $2.7 million. The gap is staggering.
Markets tend to reward patience. Most of the gains occur in short, powerful bursts. Miss the best days, and your returns can be cut dramatically.
If You’re Convinced Tariffs Will Hurt—Invest Like It
If you believe tariffs, trade wars, or geopolitical shocks will hit certain sectors, that’s not irrational. But instead of fleeing the market, the better approach is strategic positioning.
- Reinforce your portfolio with dividend-paying stocks. These companies can offer consistent income and tend to be more resilient in volatile markets. For more on why, see the article we recently posted on our Blog, Why More Investors Are Turning to Dividend-Paying Companies
- Favor domestic-facing sectors like utilities, healthcare, and consumer staples, which are less reliant on global supply chains.
- Don’t assume American brands are immune. Many U.S. manufacturers like Ford and GM have been hit hard because their supply chains are global. Parts are made overseas, and tariffs act like a tax on their cost structure. Result? Lower margins and, unsurprisingly, stock price declines.
- Maintain 12–18 months of liquidity for short-term needs so you’re never forced to sell during a downturn.
- Look for high-quality growth stocks that are temporarily discounted but have strong fundamentals.
- Consider allocating a portion of your assets to annuities, which offer principal protection, tax-deferred growth, and guaranteed income options. Unlike most investments, annuities can provide contractual guarantees—not just projections—and may serve as a stabilizing component of your retirement strategy. For more on why, see the article we recently posted on our Blog, What’s Driving Record-High Annuity Sales and Should You Join the Herd?
- Explore value ETFs or international markets like Europe or Japan, where valuations are often more attractive than in the U.S.
Avoid overreacting with complex hedging strategies or inverse ETFs. These tools are better left to short-term investors who are willing to take on more risk than those saving for retirement. A balanced portfolio with modest diversifiers like TIPS, high-quality bonds, or covered-call strategies can offer smoother returns.
Bottom Line: Fear Is Not a Strategy
You don’t need to be fearless to succeed as an investor—but you do need to be disciplined. Holding cash might feel safe in the moment, but over time, it erodes your purchasing power and sacrifices long-term growth.
You can’t predict the next tariff announcement or election result. But you can prepare a portfolio that withstands storms and seizes opportunity. At EsqWealth, we believe uncertainty isn’t a reason to retreat. It’s a reason to plan.
[i] Mark J. Perry, “Animated chart of the day: Historical returns on stocks, T-bill and T-bonds, 1928 to 2018,” American Enterprise Institute, January 2019. https://www.aei.org/carpe-diem/animated-chart-of-the-day-historical-returns-on-stocks-t-bill-and-t-bonds-1928-to-2018; Mark Hulbert, “What 125 years of data says about diversification and investing at record highs,” MarketWatch, February 11, 2020. https://www.marketwatch.com/story/what-125-years-of-data-says-about-diversification-and-investing-at-record-highs-9a691330.
[ii] Adam Levy, “Here’s the Average Stock Market Return Under Democratic and Republican Presidents (Hint: It May Surprise You),” The Motley Fool via Nasdaq, March 15, 2024. https://www.nasdaq.com/articles/heres-average-stock-market-return-under-democratic-and-republican-presidents-hint-it-may; Beata Caranci et al., “U.S. Presidential Elections & the Stock Market,” TD Economics, October 2020. https://economics.td.com/us-presidential-elections-stock-market.
[iii] Murray Rothbard, “A Brief History of Tariffs and Stock Market Crises,” Mises Institute. https://mises.org/mises-wire/brief-history-tariffs-and-stock-market-crises.
[iv] Benoit Mojon and Antoine Martin, “Using Stock Returns to Assess the Aggregate Effect of the U.S.–China Trade War,” Liberty Street Economics, Federal Reserve Bank of New York, December 2024. https://libertystreeteconomics.newyorkfed.org/2024/12/using-stock-returns-to-assess-the-aggregate-effect-of-the-u-s-china-trade-war; “China–United States Trade War,” Wikipedia. https://en.wikipedia.org/wiki/China%E2%80%93United_States_trade_war.
The information above is not intended to and should not be construed as specific advice or recommendations for any individual. The opinions voiced are for general information only and are not intended to provide, and should not be relied on for tax, legal, or accounting advice. To discuss specific recommendations for any unique situation, please feel free to contact us.