Investors: Don’t Fall Prey to ‘Environmental Uncertainty’ as Tariffs Roil the Market—Try This Instead

Amid the renewed risk of a recession and recent political developments (tariffs, anyone?), investors may be feeling the urge to reevaluate their investments.

The full impact of tariffs or whether a recession will happen are hard to predict, even for experts. But whether or not these threats end up materializing, or the extent of their impact, may be beside the point: For many investors, even the threat of a potential recession or future price hikes may already be influencing how they are thinking about their money.

That’s because phrases like economic chaos, trade war retaliation, and market turmoil throw us into a chasm of environmental uncertainty. Simply put, investors don’t know what to expect from their environment, in this case, the US economy and the current administration, given the chaotic start to the year.

Unfortunately, this environmental uncertainty does strange things to our decision-making.

How Environmental Uncertainty Warps Our Decision-Making

To start, environmental uncertainty can make us feel as though we have a lack of control. When it comes to our daily expenses and the future value of our hard-earned money, that feeling is terrifying.

How do people handle this? They seek control over their environment.

For example, we see this behavior when investors pull their money out of stocks during volatility and move their funds to low-risk assets. In these cases, investors are trading an unknowable future for something that is fairly certain, which makes them feel more in control (even though they pay for that control in lost future gains).

More generally, amid environmental uncertainty, people may be pushed toward short-term thinking. That’s because during times of high unpredictability, future payoffs may seem uncertain. If a person can’t trust that delaying gratification now will be worth it in the future, what’s the point of holding off?

This mindset can prompt investors to disregard their long-term financial goals and engage in risky behaviors to seek immediate gratification.

How to Combat the Impact of Environmental Uncertainty

Though the current political and market environments are outside of our control, that doesn’t mean that we have to be entirely at their mercy. Nor does it mean we have to let them warp our decision-making.

Try these tips to help stay on track amid environmental uncertainty.

1) Take a break.

While it can be important to stay connected and up to date on world news, constant monitoring of media feeds can trigger behavioral biases that hurt more than they help. There is a line between being an informed investor and obsessing over market movements—and during environmental uncertainty, this line can become increasingly difficult to identify.

Try setting up a regular schedule for how often you check your portfolio or even look over market news. Also, try limiting your news feed to trusted, well-balanced information sources.

2) Take thoughtful action.

As familiar as you may be with the age-old investing rule of waiting out market volatility, it’s hard to stay calm and “do nothing” when your portfolio is losing value. So, harness that urge to take action; instead of making it an action that can negatively affect your long-term goals, make it a thoughtful one.

For example, instead of identifying investments you’re going to sell, spend your energy making sure your financial plan is on track to meet your goals. This could involve ensuring that your portfolio is well-diversified or checking that your emergency savings fund is sufficient. Or even considering investments to buy before they recover.

3) Remind yourself of your long-term goals.

Because environmental uncertainty can trigger short-term thinking, try to combat that gut reaction by pushing yourself to think long-term.

One way to do this is by reacquainting yourself with your long-term financial goals. Try using a tool to help you slow down, think carefully about your aspirations, and recommit to those goals.

Wrapping Up

The mere mention of words and phrases like recession and trade wars can influence how we think about our money and warp our decision-making.

That’s because political and economic uncertainty creates a sense of environmental uncertainty, prompting us to grasp at ways to take back control of our money and obtain short-term gains. Hover, during times like these, it’s crucial to stick to long-term financial goals and resist the urge to resort to short-term thinking.