A Smarter Glide Path for College Savings

Most 529 plans take a conservative approach to risk. What if being too cautious early on means leaving thousands of dollars on the table?

At Gatewood Wealth Solutions, we believe the key to smarter college savings is compounding earlier—when you have the time—and only dialing back risk when it truly matters. In this post, we walk through our custom 529 glide path and compare it to the most common industry average.

Why Glide Paths Matter in 529 Plans

Glide paths are automated investment changes. In 529s, most glide paths reduce equity (stocks) and increase fixed income (bonds/cash) as the beneficiary enters elementary school. It sounds sensible, but the problem is: these providers reduce risk far too early.

Most Gatewood clients don’t touch 529 money until the first year of college. Even then, withdrawals happen over four years. Many families don’t fully spend the accounts at all—preserving them for legacy planning. If the money is invested too conservatively for too long, it underperforms significantly.

That’s where the Gatewood Glide stands apart.

Our Glide Path 

Gatewood’s 529 Glide:

• Starts at 100% equity
• Moves to 60% equity/40% bonds at high school entry (~age 14)
• Drops to 30% equity / 40% bonds / 30% cash at college entry (~age 18)

This gives investors the opportunity to benefit from long-term market growth while still adjusting tactically later if needed.

Glide Path Comparison: Equity Allocation by Milestone

Equity Glide Paths

Why It Matters

We are a regulated industry, so publishing expected equity returns can be difficult. However, investors are aware of a consistent equity premium earned in the long run from taking equity risk over fixed income and cash.

Eighteen years is a long-term horizon. We believe that maintaining an average allocation above 80% equity during the growth years aims to lead to better results compared to the typical glide, which tends to average below 60% equity.

Finally, 529 plans are more than just tax shelters. They’re strategic long-term tools. By defaulting too conservative, traditional glide paths underserve many families. At Gatewood, we believe in giving your savings room to grow, with thoughtful transitions when the time is right.

Our 529 strategy reflects how clients really use their plans:

• Continued contributions during high school
• Maintain flexibility around college withdrawals
• Preserve asset for legacy planning

If you’re interested in building a 529 plan that aligns with your goals, we’re here to help.

Building a Better 529 Plan Strategy

Also read: Rethinking the 529: A Legacy Vehicle Hiding in Plain Sight
Explore how 529 plans can extend beyond college savings and support multi-generational wealth planning.

Important Disclosures

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Investing involves risk including loss of principal.  No strategy assures success or protects against loss.

This is a hypothetical example and is not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.

Prior to investing in a 529 Plan investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.

Rethinking the 529: A Legacy Vehicle Hiding in Plain Sight

A Quiet Shift with Big Implications

When most people hear “529 plan,” they immediately think “college savings.” And for good reason. These state-sponsored plans have long been the go-to solution for parents and grandparents who want to fund a child’s education while reaping tax benefits.

But a quiet revolution is underway.

Thanks to a series of legislative updates over the past several years—including the Tax Cuts and Jobs Act, both SECURE Acts, and most recently, the One Big Beautiful Bill—529 plans have become more attractive, more flexible, and more expansive than ever. These updates have broadened the definition of “qualified education expenses,” added rollover opportunities to Roth IRAs, and removed financial aid penalties for grandparent-owned accounts. In short: this once narrowly focused tool has evolved into one of the most powerful, tax-efficient investment vehicles available.

The Game-Changer: One Big Beautiful Bill

The One Big Beautiful Bill took things a step further—doubling down on flexibility and long-term planning power. Starting in 2026:

• The annual K–12 withdrawal limit increases to $20,000 per beneficiary, up from $10,000.
• Qualified expenses now include curricular materials, books, tutoring, dual-enrollment fees, standardized test costs, and even certain homeschooling expenses.
• Non-college paths are embraced—vocational training, licensing programs, and professional certifications now qualify, further aligning 529s with the evolving definition of education.

This expansion significantly increases the relevance of 529 plans for families focused on long-term legacy planning. These aren’t just college accounts—they’re a tool to prepare the next generation for any path.

A Multigenerational Strategy in the Making

Imagine this: instead of waiting to pass wealth to future generations through trusts or posthumous bequests, you begin gifting into a 529 plan today. Not just for one child—but for each grandchild or even great-grandchild. Over decades, these accounts provide tax-free growth potential, and can be repositioned for education, vocational training, or even retirement.

And because the account owner can change the beneficiary as needed, the legacy can be sustained for generations.

Final Thoughts

At Gatewood Wealth Solutions, we believe in building Wealth with Purpose. That often means taking a fresh look at overlooked tools—and right now, 529 plans are a hidden gem for legacy-minded families.

Let’s stop thinking of the 529 as a college-only account. It’s time to recognize it for what it really is: one of the most tax-efficient, flexible, and powerful long-term planning vehicles we have.

Related Reading:

A Smarter 529 Investment Strategy
Learn how Gatewood’s custom glide path keeps your education savings aligned with your timeline—not just a default formula.

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Investing involves risk including loss of principal.  No strategy assures success or protects against loss.

Prior to investing in a 529 Plan investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.

How to Build a 401(k) Lineup with Passive and Active Fund Strategies

In designing a 401(k) lineup, empirical research favors passive index funds for core exposure, complemented by a few targeted active funds where managers have historically added value. Studies show that index funds generally outperform active peers in most asset classes (Morningstar, 2023)[1]. Meanwhile, certain market segments (international equity, fixed income, small-cap value, large-cap growth) exhibit inefficiencies that skilled active managers can exploit. The resulting hybrid strategy combines a passive core with selected active satellites to improve net outcomes.

Passive Style-Box Coverage

Passive core funds should cover all nine equity style boxes (large/mid/small crossed with value/blend/growth) at low cost. This broad coverage ensures participants receive market-like exposure without stock-picking risk. Passive funds have low fees, minimal turnover, and reduce behavioral risk.

• • Passive core funds span the full style-box grid, giving exposure to value, blend, and growth stocks in each size tier.

• • Low fees mean higher net returns: even small expense differences compound into large performance advantages.

• • Research shows passive funds dominate core equity: over long horizons, most active large- and mid-cap funds underperform.

Rationale for Active International Equity

• Market Inefficiencies: Non-U.S. markets exhibit more complexity — including variable accounting standards, political risks, and currency volatility — which can create opportunities for skilled managers.

• • Long-Term Evidence: Morningstar’s 2023 Active/Passive Barometer shows that approximately 40% of active international large-blend managers outperformed their average passive peers (Morningstar, 2023)[1] over the past 10 years. While not a majority, this is notably higher than the 10-year success rate for U.S. large-blend managers, which is closer to 10%. This relative improvement highlights that international equity markets may offer more opportunity for skilled active management due to greater inefficiencies and dispersion. (Source: Morningstar Active/Passive Barometer, 2023)

Rationale for Active Fixed Income

• Market Structure: The bond market is less efficient than equity markets. There are thousands of issuers and individual securities, most of which are not traded daily and have no centralized exchange. Bonds differ by coupon, maturity, credit rating, and call provisions — making analysis and pricing less transparent.

• • Manager Flexibility: Active bond funds can shift credit exposure, shorten or lengthen duration, and overweight undervalued sectors (e.g., MBS, corporates) based on macro trends. Indexes cannot.

• • Long-Term Evidence: Over the 10 years ending 2023, nearly 40% of active intermediate core bond funds beat their average passive peer (Morningstar, 2024). While not a majority, this rate is substantially higher than for active equity.

Rationale for Active Small-Cap Value

• Market Inefficiency: Small companies often lack analyst coverage and trade with wider spreads. Many are mispriced or have volatile fundamentals that require deeper research.

• • Style Advantage: Value-oriented small caps can offer better entry points for active managers. Broad small-cap indexes tend to hold speculative or unprofitable firms — skilled managers can avoid these and target quality.

• • Empirical Support: Morningstar’s long-term data (2023) shows that over a 10-year horizon, ~36% of active small-cap value funds outperformed — significantly higher than in large-cap. This provides a more favorable landscape for active strategies.

Rationale for Active Large-Cap Growth

• Concentration Risk: Growth indexes like the Russell 1000 Growth are highly concentrated in a few mega-cap tech names. As of mid-2024, over 50% of the index’s weight is in the top 10 holdings, creating a portfolio that behaves more like a concentrated fund than a diversified strategy.

• • Cyclical Opportunity: In years when leadership broadens or top names falter, active managers can outperform. For example, during the 2022–2023 cycle, many active large-growth managers beat their benchmarks by reallocating away from overvalued mega-cap names.

• • Risk Management Benefit: While long-term evidence of outperformance is weaker in this category, the case for active large-cap growth lies in mitigating concentration risk. Active managers may not consistently generate alpha, but they can reduce single-stock exposure and better manage downside volatility. This is particularly important given that large-cap growth is often one of the highest allocations among participants, driven by the familiarity and popularity of big-name tech stocks.

Cost and Fiduciary Considerations

• Fee Discipline: A small annual fee gap — such as between a 0.05% passive index fund and a 0.60% active alternative — can reduce terminal wealth by around 13% over 20 years due to compounding.

• • Fiduciary Process: ERISA requires that fiduciaries act prudently and in participants’ best interests. “A fully passive lineup can meet this standard by offering broad diversification at low cost. However, offering evidence-backed active options in areas with higher inefficiencies can also be prudent—especially when it gives participants an opportunity to enhance returns or offset plan-related fees.

Conclusion

A 401(k) lineup built on passive index funds for full style-box coverage plus a targeted set of active funds in inefficient asset classes offers the best of both worlds: cost efficiency, fiduciary alignment, potential for excess return, and improved risk management.

By combining the reliability of passive investing with selective active management in four time tested categories — international equity, fixed income, small-cap value, and large-cap growth — sponsors can create a modern, research-backed lineup that supports participant success over time.

Are you reviewing your plan’s investment lineup? At Gatewood, we help plan sponsors apply fiduciary standards while building smart, efficient lineups that support long-term participant success.

Sources:

1. Morningstar. Active/Passive Barometer: U.S. Fund Landscape. July 2023.
   https://www.morningstar.com/lp/active-passive-barometer

2. S&P Dow Jones Indices. SPIVA® U.S. Scorecard – Year-End 2023.
   https://www.spglobal.com/spdji/en/research-insights/spiva/

3. U.S. Department of Labor. Employee Retirement Income Security Act of 1974 (ERISA), Section 404(a)(1)(B).
   https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/publications/understanding-retirement-plan-fees-and-expenses

4. Vanguard Research. The Case for Active Management in International Markets. 2022.
   https://advisors.vanguard.com/insights/article/the-case-for-active-management-in-international-markets

5. Morningstar. Why Indexing Works. Morningstar Research Article. 2023.
   https://www.morningstar.com/articles/1132679/why-indexing-works

6. Vanguard. Vanguard Large-Cap Value Index Fund (VVIAX) Prospectus and Fact Sheet. 2024.
   https://investor.vanguard.com/investment-products/mutual-funds/profile/vvifax

7. Morningstar Direct. Intermediate Core Bond Fund Category Performance. Accessed 2024.

8. FTSE Russell. Russell 1000 Growth Index Fact Sheet. 2024.
   https://www.ftserussell.com/products/indices/russell-us

Important Disclosures:

This information was developed as a general guide to educate plan sponsors but is not intended as authoritative guidance or tax or legal advice.  Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation.  In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations..

Investing involves risk including loss of principal.  No strategy assures success or protects against loss. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets

Bonds are subject to credit, market, and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

The prices of small cap stocks are generally more volatile than large cap stocks.

Gatewood Glide: Asset Allocation by Wealth Stage

Investing isn’t one-size-fits-all. At Gatewood Wealth Solutions, we’ve built a tailored approach—The Gatewood Glide—designed to support investors through each stage of their financial journey, from early accumulation to meaningful legacy-building.

Phase 1: Cultivating – The Habit-Builder

Persona: Early-career professional (entry-level), often single, establishing money habits.

Primary Goals:

• Develop solid financial habits.
• Avoid debt; build credit responsibly.
• Start investing and saving consistently.

Recommended Allocation:

Planning Tips:

• Embrace volatility. You have decades to ride out market fluctuations.
• Prioritize aggressive growth potential (e.g., Total Market Index).
• No fixed income needed yet—keep it simple and growth-oriented.

Phase 2: Building – The Growth-Engine Household

Persona: Dual-income couples, high earners, on track to wealth accumulation.

Primary Goals:

• Maximize contributions to tax-advantaged retirement accounts.
• Fund goals: home purchase, family, education.
• Explore early wealth transfer or entrepreneurial opportunities.

Recommended Allocation:

Planning Tips:

• Continue aggressive accumulation—bonds aren’t beneficial yet.
• Use Roth conversions and prioritize tax advantages.
• Maintain liquidity for near-term goals without sacrificing growth.

Phase 3: Activating – The Glide Begins (10 Years Pre-Retirement)

Persona: Peak-earning years, retirement horizon in sight.

Primary Goals:

• Gradually reduce risk exposure without sacrificing growth.
• Establish liquidity buffers.
• Maintain purchasing power.

Recommended Allocation:

Planning Tips:

• Initiate the Gatewood Glide: gradually shifting equities from ~100% down to ~65% over ten years.
• Bonds and cash to cover initial 5–7 years of retirement spending.
• Consider alternatives based on eligibility and appetite for diversification.
• Align risk tolerance and financial goals clearly—differentiate from traditional target-date funds.

Phase 4: Enjoying – The Confident Retiree

Persona: Retired, financially independent individuals.

Primary Goals:

• Sustain spending comfortably.
• Mitigate sequence-of-returns risk.
• Minimize tax drag and financial anxiety.

Recommended Allocation:

Planning Tips:

• Equities seek to ensure long-term growth, seeking inflation protection.
• Bonds secure spending needs for 5–10 years, offering stability during downturns.
• Alts enhance diversification (private credit, real estate, private equity).
• Tail-risk scenarios (1970s stagflation, 2000s Dotcom) built into strategic planning.

Phase 5: Giving – The Legacy Builder

Persona: Ultra-high-net-worth retirees, philanthropically inclined.

Primary Goals:

• Create lasting legacies through strategic philanthropy.
• Optimize institutional-level investment efficiency.
• Maintain liquidity and simplicity in complex financial environments.

Recommended Allocation:

Planning Tips:

• Aggressively utilize alts if liquidity allows.
• Prioritize tax-efficient giving (Donor-Advised Funds, Charitable Remainder Trusts, foundations).
• Balance preservation, growth, and gifting efficiency carefully.

What Sets Gatewood Glide Apart?

The Gatewood Glidepath significantly diverges from traditional target-date funds. Here’s how:

• Aggressive early equity exposure: Starting nearly fully invested in stocks (98%) seeking to maximize growth early on.
• Higher equity at retirement: Maintains ~70% equity at retirement, significantly higher than the industry average (~50%), seeking to ensure ongoing portfolio growth potential.
• Long-term growth-oriented approach: Treating retirement not as the end of growth, but as the start of a new investment horizon.

Final Thoughts: Why Gatewood Glide Matters

At Gatewood Wealth Solutions, our Glidepath isn’t just about reaching retirement—it’s about confidently soaring through it. By prioritizing growth through higher equity allocations, our goal is to enable our clients not just to retire, but to retire well—maintaining their lifestyles, preserving their purchasing power, and pursuing meaningful legacies.

In short, the Gatewood Glide is designed not just for longevity, but for prosperity.

Because retirement shouldn’t mean slowing down; it should mean continuing your ascent.

Ready to Glide?

Connect with our team to start your personalized journey toward financial clarity and confidence.

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Investing involves risk including loss of principal. No strategy assures success or protects against loss.

This information is not intended to be a substitute for individualized tax advice. We suggest that you discuss your specific tax situation with a qualified tax advisor.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Alternative investments may not be suitable for all investors and should be considered as an investment for the risk capital portion of the investor’s portfolio. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. Bonds are subject to availability, change in price, call features and credit risk

The principal value of a target fund is not guaranteed at any time, including at the target date.

Smart Cash Strategies for Today’s Investors

At Gatewood Wealth Solutions, we believe your cash should do more than just sit in a savings account. Whether you need short-term income or are planning for a future large expense, there are smart, managed strategies designed to keep your money working while staying aligned with your financial goals. That’s where our Cash Flow Advisory Strategy and Lump Sum Advisory Strategy come in.

What Are These Strategies?

Both strategies are actively managed cash and cash-equivalent allocations designed with a goal to help clients capture higher short-term yields while maintaining liquidity and stability. However, they serve two distinct purposes:

• Cash Flow Strategy is for ongoing income needs, such as monthly withdrawals in retirement or other recurring distributions.
• Lump Sum Strategy is for specific future expenses, such as a home down payment, tax payments, or a major purchase 6 to 24 months out.

How Do They Work?

Each strategy is structured using a tiered bucket system, with allocations managed by our Investment Committee. The funds are invested in a mix of ultra-short-term, high-quality bond funds and cash equivalents, allowing you to earn a competitive yield while keeping the risk low.

Both strategies use the same four investment buckets but are customized by time horizon and client-specific goals. Here is a breakdown of each bucket and its role within the strategies:

1. Cash Sweep (0–4 months)

• Purpose: Immediate liquidity
• Description: This bucket consists of FDIC-insured cash. It’s fully liquid and used for near-term distributions—typically covering 1 to 2 months of expenses in the Lump Sum Strategy and up to 4 months in the Cash Flow Strategy. This is your most accessible cash, designed to meet known, immediate needs.
• Why We Use It: It protects against the need to sell investments at an inopportune time and ensures quick access to funds.

2. Cash Equivalents (4–15 months) 

• Purpose: Short-term stability with a yield advantage over traditional savings
• Description: This bucket is made up of high-quality, ultra-short-term bonds or money market funds with average maturities under 60 days. These investments aim to maintain a stable $1 value while earning a higher yield than FDIC-insured cash.
• Why We Use It: These instruments are low-risk and highly liquid, making them suitable for short-term needs while delivering higher interest income.

3. Government Duration (10–16 months)

• Purpose: Incremental return potential with modest volatility
• Description: This bucket contains U.S. government bonds with slightly longer maturities. These securities may have minor price fluctuations but offer a yield advantage when the interest rate outlook justifies extending duration.
• Why We Use It: When interest rates are expected to fall or stabilize, this bucket helps add return without taking on credit risk. We may hold this bucket selectively depending on the market environment.

4. Credit (16–24 months)

• Purpose: Higher return potential for mid-term needs
• Description: This bucket includes short-term corporate bonds. These offer higher yields than government securities but also carry credit risk. When credit spreads are attractive, this bucket adds value. When spreads are tight, as they are currently, we avoid this allocation.
• Why We Use It: When appropriately timed, it enhances returns without overextending risk. It is used only when the risk-reward tradeoff is favorable.

Here’s a simplified breakdown:

Making It Simple: A Helpful Analogy

To make the distinction even clearer, think of these two strategies like packing for a trip:

• The Cash Flow Strategy is your carry-on bag—it holds everything you need right away: monthly withdrawals, bills, and short-term expenses. It’s always close, easy to access, and organized to support your daily needs without touching your long-term investments.
• The Lump Sum Strategy is your checked luggage—it’s packed for something coming up later in the journey. Maybe it’s a major purchase, a home remodel, or another large one-time expense. You don’t need it today, but it needs to be ready when the time comes.

Both “bags” are thoughtfully packed to serve a specific purpose. By separating your short-term needs from your near-future plans, you avoid overloading your portfolio with cash—or worse, being forced to sell long-term investments at the wrong time.

When Is Each Strategy Appropriate?

• Use the Cash Flow Strategy if you:
  • Are taking monthly or quarterly withdrawals
  • Are in retirement and need predictable income
  • Want to insulate your investment portfolio from market-driven withdrawals

• Use the Lump Sum Strategy if you:
  • Have a known upcoming expense in 6–24 months
  • Are saving for a home, wedding, remodel, or other large goal
  • Don’t want to leave the money in a low-yield bank account but also don’t want the risk of the market

Cash Hub vs. Planning for the Future

The Cash Hub is part of our broader retirement income strategy. It represents a specific number of months’ worth of expenses we recommend keeping liquid to avoid selling long-term investments during downturns. For many retirees, we target 18 to 24 months of non-covered expenses in cash, creating a buffer for down markets.

The Lump Sum Strategy, on the other hand, is designed for one-time planned needs. Rather than letting those dollars sit idle in a checking account or risk losing value to inflation, we position the funds in a stable, managed solution.

Example: How a Client Might Use Both

Meet Sarah, age 62, recently retired. She has:

• $140,000 in cash from a recent bonus and stock option payout
• Monthly expenses of $10,000
• Social Security and a pension covering $6,000 per month

Her Plan: 

• $96,000 goes to her Cash Flow Strategy (24 months of net cash needs: $10,000 – $6,000 = $4,000 × 24)
• $30,000 goes to her Lump Sum Strategy for a kitchen remodel in 18 months
• The rest stays in her investment portfolio for long-term growth potential

This allows Sarah to keep her distributions steady, avoid selling stocks in a downturn, and earn more on her near-term funds than she would at the bank.

Why Not Just Use a Savings Account or CD?

While savings accounts and CD’s offer less volatility, they fall short in three key areas:

• Low yields: Even high-yield savings accounts often return less than our managed strategies
• Inflexibility: CD’s lock your money for a set term, which may not align with your needs
• No strategy: Bank accounts are static. Our strategies are actively managed based on interest rates and your goals

That said, it’s important to note: unlike bank accounts, these funds must be sold before cash becomes available. However, the process is simple and only takes 1–2 business days to settle, and we handle the logistics for you.

Bottom Line: Purpose-Driven Cash Management

Your short-term cash shouldn’t be an afterthought. With thoughtful planning, strategic allocation, and active oversight, your money can stay accessible, and productive.

If you’re holding significant cash in the bank or unsure how to structure your liquidity, let’s talk about how these strategies can work for you.

Important Disclosures

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Investing involves risk including loss of principal.  No strategy assures success or protects against loss

Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.

CDs are FDIC insured to specific limits and offer a fixed rate of return if held to maturity, whereas investing in securities is subject to market risk including loss of principal.

An investment in the Money Market Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible  to lose money by investing in the Fund.

This is a hypothetical example and is not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing

“This Too Shall Pass.” The Five-Year Anniversary of the Covid Crash.

“This Time it’s Different.”

The markets have given us a lot to digest lately. From shifting tariffs under the Trump administration to Elon Musk’s influence on the rise (and rollercoaster) of DOGE, plus rapid changes in federal policies—uncertainty has been the dominant theme. And if there’s one thing markets hate, it’s uncertainty. But while the headlines may suggest that “this time is different,” we’re reminded again that history often tells a reassuringly familiar story: this too shall pass.

The Uncertainty Factor

We’re seeing how quickly investors react to potential trade wars, personnel shifts, and talks of cutting wasteful or fraudulent spending. When so many unknowns hit at once, markets struggle to price it all in. Yet history reminds us that markets have weathered many storms before.

When COVID-19 first struck, markets plummeted before recovering in record time. That tells us something about how investor psychology works: once the most severe unknowns become known—even if they’re negative—markets tend to re-price and move on.

A Look at Recent Volatility

In order to put the current volatility in context, consider the COVID-19 crash.

• Worst days since 2020:
  • March 16, 2020: -11.98%
  • March 12, 2020: -9.51%
  • March 9, 2020: -7.60%
• Best days since 2020:
  • March 24, 2020: +9.38%
  • March 13, 2020: +9.29%
  • March 26, 2020: +6.24%

In just 33 days, from February 19 to March 23, 2020, the S&P 500 fell 33.9%—a truly historic plunge. Yet, by August 18, 2020, barely six months later, the index had fully rebounded, even though the world was far from normal.

What changed? By March 23, the uncertainty about global shutdowns was, to some degree, factored in. The market had enough information to price the situation and begin its climb.

Perspective Through History

Since 1980, the S&P 500 has had an average intra-year drop of 14%. That means, in any given year, you can expect some sharp swings. Despite these drawdowns, the index still finished positive in 34 of the last 45 years.

Yes, tariffs can rattle short-term confidence. Yes, DOGE hype can come and go. Yes, federal cuts can spark anxiety. But these are just the latest in a long history of events that cause market volatility. Historically, markets have proved resilient in the face of everything from recessions to pandemics and they tend to reward disciplined investors over time.

The Power of Diversification

The current landscape also underscores why diversification is critical.

• International holdings are significantly outperforming U.S. stocks this year.
• Value stocks have been outpacing growth stocks.
• Fixed income offers yields comfortably in the 4% range, providing stability amid the market’s daily fluctuations.

If you’re only invested in a narrow slice of the market, you feel every bump. A well-diversified portfolio, on the other hand, can help cushion the ride when uncertainty hits.

Staying Disciplined in Uncertain Times

As the news cycle churns, it’s easy to think, “This time is different.” But if recent history has taught us anything, it’s that overreacting to short-term market swings can often do more harm than good.

• Volatility is part of the investing journey.
• Uncertainty is inevitable.
• Long-term perspective usually wins the day.

Whether the market is panicking over tariffs, new technologies, or dramatic fiscal changes, remember that reacting out of fear can lock in losses and undermine the very reason we invest: to grow our wealth over time.

The Bottom Line

Market uncertainty is never comfortable, but it’s not new. We’ve seen swift downturns before, and we’ll see them again. Historically, markets reward those who stay focused on their goals rather than getting caught up in the headlines.

When uncertainty is high, it helps to revisit your investment plan, lean on diversification, and keep a steady hand on the wheel. While the players and policies may change from one administration to the next, what remains is the market’s ability to adapt and recover, often more quickly than we expect.

In other words: this too shall pass.

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Investing involves risk including loss of principal. No strategy assures success or protects against loss.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA & SIPC.

Trump’s Proposed Tariffs: Economic Weapon or Unintended Consequences?

Introduction

Tariffs have long been a powerful but controversial tool in economic policy, influencing trade balances, industry growth, and global relations. While tariffs are often used to protect domestic industries and jobs, they can also increase costs, disrupt supply chains, and provoke retaliatory trade measures.

With President Donald Trump proposing new tariffs in his second term, it is critical to examine the potential economic benefits and consequences of these policies.

How Tariffs Work & Why Politicians Use Them

A tariff is a tax imposed on imported goods, making them more expensive and giving domestic industries a competitive edge. Governments justify tariffs for several reasons:

• ✔ Protecting Domestic Industries – Shields local businesses from cheaper foreign competitors.
• ✔ Reducing Trade Deficits – Encourages domestic consumption over imports.
• ✔ Leverage in Trade Negotiations – Used as a bargaining tool in international trade deals.
• ✔ Revenue Generation – Provides direct tax revenue to the government.

President Trump previously implemented tariffs as part of his “America First” trade policy. In his second term, he has proposed tariffs on imports from Canada, Mexico, and China, as well as reciprocal tariffs to match the duties imposed on U.S. goods by other countries.

While these measures aim to strengthen U.S. industry, they also carry potential risks, including higher consumer prices and trade retaliation from global partners.

The Pros & Cons of Tariffs: Who Wins and Who Loses?

✔ Potential Benefits of Tariffs

• Job Protection & Domestic Growth – Industries like steel, textiles, and technology benefit from reduced foreign competition.
• Stronger Local Manufacturing – Encourages companies to reinvest in U.S. production rather than outsourcing.
• Negotiation Leverage – Tariffs pressure foreign nations to renegotiate trade agreements that benefit American businesses.
• Short-Term Gains for Farmers & Key Sectors – Temporary relief from low-price competition abroad.

Example: U.S. steel tariffs helped boost domestic production but raised costs for automakers and construction firms.

❌ The Negative Effects of Tariffs

• Higher Costs for Consumers – Businesses pass tariff costs onto consumers, raising prices for food, electronics, and automobiles.
• Inflationary Pressures – Tariffs increase overall inflation, leading to higher interest rates and slowing economic growth.
• Retaliatory Tariffs Hurt U.S. Exports – Countries like China and the EU respond by targeting American industries (e.g., soybeans, whiskey).
• Disruptions to Global Supply Chains – Industries reliant on imported raw materials (e.g., automotive, tech, and manufacturing) face higher costs and production delays.

Example: The U.S.-China Trade War (2018-2020) led to higher prices on imported goods, costing the average American household $1,277 per year.

Impact on Inflation & Global Trade

One of the biggest risks of tariffs is inflation. As tariffs increase the cost of imported goods, companies pass these expenses to consumers, raising prices across the economy.

✔ Short-Term Effects: Higher prices on targeted imports (e.g., electronics, clothing, food).

❌ Long-Term Effects: Persistent inflation pressures force the Federal Reserve to raise interest rates, slowing investment and job growth.

Globally, tariffs disrupt trade flows as companies shift production to countries with lower trade barriers. Nations impacted by U.S. tariffs may form alternative trade agreements, reducing American influence in global markets.

Example: After U.S. tariffs, China increased soybean imports from Brazil, permanently reducing U.S. market share.

Are Tariffs a Sustainable Economic Strategy?

✔ When Used Selectively: Tariffs can protect key industries and pressure foreign nations into fairer trade deals.

❌ Overuse Leads to Economic Slowdowns: Broad tariff policies raise costs, fuel inflation, and trigger global trade conflicts.

With President Trump’s proposed second-term tariffs, policymakers must carefully weigh short-term benefits against long-term risks. If implemented without strategic adjustments, tariffs could exacerbate inflation and slow economic recovery.

Conclusion: Finding a Balanced Trade Approach

Rather than relying solely on tariffs, the U.S. could consider:

✔ Trade Agreements that Promote Fair Competition (e.g., stronger deals with allies).

✔ Tax Incentives for Domestic Manufacturing (instead of penalizing imports).

✔ Investments in Workforce Development & Technology (to make U.S. industries more competitive globally).

Ultimately, tariffs should be used as a precise tool, not a broad economic policy. While they can shield domestic industries, their long-term costs—higher prices, inflation, and trade retaliation—must be carefully managed.

What’s Next?

As the Trump administration considers new tariffs, businesses and consumers should prepare for potential price increases, supply chain adjustments, and shifts in global trade dynamics. The key to long-term economic success lies in balancing protectionist policies with sustainable growth strategies.

Tariff Impacts: Positives and Negatives.

The table below outlines the potential positive and negative impacts of tariffs across various industries and countries. While tariffs can provide benefits such as protecting domestic industries and increasing government revenue, they also introduce challenges such as higher consumer prices, trade disruptions, and economic slowdowns.