The impact that tariffs and trade wars may have on the economy looks to be weighing on the markets of late. In the past three months, since the presidential election, there has been a lot of turbulence in the market with the S&P 500‘s gains over that stretch up around just 1%. President Trump has threatened multiple countries with tariffs, but there’s still a lot of uncertainty as to how all that will play out.
However, investors don’t need to get out of the market due to that uncertainty. It can be nerve-racking, and some stocks have been falling due to the potential havoc that tariffs could impose on their businesses. But selling your holdings and possibly getting out of the market because of this can prove to be a costly mistake, and here’s why.
When you’re investing for the long haul, focusing on the bigger picture is of far greater importance while ignoring short-term disruptions like tariffs and policy changes.
Furthermore, predicting what the government may or may not do is difficult, if not impossible. After all, legislation can take time, and it can change from one administration to the next.
If you’re investing in a business that may be so vulnerable to tariffs that they may cripple its ability to compete in the long run, endangering its long-term survival, that may be an important sign that perhaps that business isn’t a good choice.
Billionaire investor Warren Buffett doesn’t worry about economic trends and forecasts. He remains invested and has faith in the long-term growth of the economy.
In one of his annual letters, he wrote that “despite some severe interruptions, our country’s economic progress has been breathtaking.” Betting on America and its long-term growth is something Buffett firmly believes in, and long-term investors would also be wise to focus on the bigger picture and not worry about what might happen with the economy in the next year or two.
You might still be apprehensive about holding stocks you’re not sure about. If so, there’s an easy way to remain invested in the market without having to worry about picking individual stocks: hold an exchange-traded fund (ETF).
ETFs can drastically simplify investing for you and give you exposure to many stocks — sometimes hundreds or even thousands — through a single investment. That way, you won’t depend on just one stock’s performance, and you can still stand to benefit from the market’s overall performance.
A good option for long-term investors is the Vanguard Growth ETF (NYSEMKT: VUG). The fund has a low expense ratio of 0.04% which means that fees won’t have a big effect on your overall returns.
And the ETF will give you exposure to the top growth stocks in the country, including Tesla, Meta Platforms, Nvidia, and many others. There are around 180 stocks in the fund, with tech stocks accounting for 59% of all holdings.
There can be some risk with the ETF from one year to the next, especially given how volatile tech stocks can be sometimes. But over the long haul, this fund has trounced the S&P 500, achieving returns nearly 300% over the past five years, while the broader index’s gains are around 190%.
It can be worrisome to invest when there is economic or political uncertainty. But trying to time the market and pick the optimal moment to invest can be a costly strategy that doesn’t pay off.
Instead, if you’re not sure what to invest in, putting your money into an ETF like the Vanguard Growth Index can be a much safer option to consider. It may go down in the short term, but you can be fairly confident that in the long run, it’ll rise in value.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms, Nvidia, Tesla, and Vanguard Index Funds-Vanguard Growth ETF. The Motley Fool has a disclosure policy.
