The Antidote to Trump Markets: Rebalancing and Diversification

When Trump was reelected, many investors hoped the administration would stabilize markets. However, the reality has been quite different. The White House has created market uncertainty through actions that have deeply unsettled investors:

• Abandoning European allies

• Adopting aggressive tariffs on close trade partners

• Demonstrating consistent market unpredictability

I. Trump can end the chaos whenever he wants

Much of the current market volatility is directly driven by the White House. Markets fundamentally dislike unpredictability, and Trump has shown little concern for market sentiment. However, I continue to believe that if markets fell enough, Trump will finally pay attention.

The critical point is this: The White House can choose to become more predictable and stable at any moment. When Trump decides to change his approach, markets will likely rebound. Importantly, this volatility is primarily executive-driven – Congress moves too slowly to be the primary source of current market disruptions.

II. Rebalancing during down markets

Rebalancing is the secret sauce to managing a portfolio during volatility. Here is a practical example:

Imagine you have a portfolio that was 60% equities and 40% bonds. Then a recession hits:

• Equities lose 40% of their value

• Bonds gain 10%

Your previously balanced 60/40 portfolio now looks like:

• 45% equities

• 55% bonds

Instead of trying to "time the markets," rebalancing does something powerful: it helps you buy low and sell high. By automatically returning to your 60/40 target, you're:

• Selling bonds at their peak

• Buying equities at their cheapest point

The academic literature is unanimous: rebalancing is key to managing volatile markets.

I regularly rebalance all my client accounts based on drift ranges. If their portfolio drifts too far from target, I rebalance it.

III. Diversification

US markets have been volatile and underperforming. The S&P500 (VOO) is down year-to-date. But not all indices are struggling:

• Gold (IAU): Up 10%

• International Developed Markets (VEA): Up 7.5%

• Treasury Bonds (VGLT): Up 6.3%

A diversified portfolio does more than protect you – it allows you to capture gains in unexpected places during a downturn.

The Bottom Line

Trump's market chaos is real, but market volatility isn’t unprecedented, and smart investors know how to adapt. Rebalancing and diversification aren't just technical terms – they're your best defense against unpredictable market conditions.