In these early days of the Trump administration, it has paid to hedge your bets.
The U.S. stock market has been troubled. For one day two weeks ago, the S&P 500 was consigned to the dubious territory that Wall Street calls a “correction,” meaning that stocks had fallen more than 10 percent from their peak. The market has climbed back a bit, but watching U.S. stocks struggle day by day is a recipe for indigestion.
Far better to take a broader and calmer view. Bonds, both domestic and foreign, have generally been holding steady. And a broad range of international stock markets have been doing much better than that.
In fact, for classic, diversified portfolios with roughly a 60-40 mix of stocks and bonds from around the world, it’s almost as though nothing has happened this year. My own global, diversified portfolio is up slightly in 2025, much like the Vanguard Target Retirement 2030 Fund, which has risen 1.1 percent in 2025, according to FactSet. Diversified global portfolio returns have been fairly steady, despite the tariffs and trade tensions emanating from Washington and cascading around the world.
In other circumstances, a tiny investment gain in the first three months of the year would be nothing to brag about. After all, my failure to embrace “American exceptionalism” and double down on the U.S. stock market has come at a substantial cost. Globally diversified returns have lagged those of the S&P 500 over the last two decades. The U.S. stock market benchmark has had an annualized total return of 10.4 percent over the last 20 years, several percentage points higher than standard globally diversified portfolios like mine. I’m not thrilled by that disparity.
Then again, the returns of globally diversified stock and bond portfolios have been much steadier than those of the U.S. stock market alone. I consider it a good trade-off.
Steadier returns are a balm when the world seems unhinged and the urge to flee the U.S. market is powerful, as, I’ll confess, it sometimes is for me these days.
I don’t know whether U.S. stocks will emerge unscathed from the current political climate and dominate world markets as they have since World War II. But I expect to ride out the turmoil anyway, painful though it may be, by remaining fully invested in international stock and bond markets, as well as domestic stocks.
I observed the turbulence in the U.S. market from a distance over the last month while on a sabbatical in Mexico City, knowing that I had set my investments on autopilot. That global buy-and-hold strategy kept me mellow, and the numbers show that it protected me financially.
Losses in the U.S., Gains Abroad
The U.S. stock market fell sharply as consumer and investor uncertainty mounted amid the Trump administration’s tariff threats, its disputes with universities, law firms and allied nations and its wholesale firing of employees of federal agencies.
As the furor on multiple fronts unfurled, U.S. stocks suffered, with losses ranging from minor inconveniences to devastating declines.
Nvidia became one of the most important stocks in the U.S. market in 2023 and 2024. It designs advanced chips used for artificial intelligence, and during the height of the A.I. euphoria its shares soared and buoyed the major market indexes. But this year has been markedly less euphoric. Nvidia’s shares in 2025 were down 17 percent through Thursday.
The decline has been much worse for Tesla, the electric car company led by Elon Musk. Its shares have dropped more than 32 percent this calendar year, a vertiginous slide that has coincided with the abrupt rise of Mr. Musk’s pugnacious profile in government and politics.
While the U.S. market fell, there was strikingly good news elsewhere: The fortunes of BYD, the Chinese car company, have soared. If you don’t know about BYD, it’s worth paying attention. It makes relatively inexpensive yet advanced hybrid and electric vehicles as well as traditional internal combustion cars. Given the poor state of relations between the United States and China, BYD’s handsome vehicles aren’t sold in the United States. I was a passenger in an electric BYD sedan on an Uber trip in Mexico City, and it was splendid.
According to FactSet, BYD’s biggest investor in September was Berkshire Hathaway, the company led by Warren Buffett. Vanguard, BlackRock and Fidelity have big stakes, too, which means that there’s a good chance that you’ve got a small piece of BYD in your retirement account. That’s been a good thing this year. BYD announced on Monday that its sales last year exceeded $100 billion — a threshold that Tesla hasn’t yet reached. BYD’s Hong Kong shares were up more than 52 percent through Thursday,
Big as the U.S. stock market is, it isn’t the only place to trade stocks. Markets in Europe, Asia and Latin America have been outpacing the U.S. market in 2025. The DAX index, which tracks 40 of Germany’s most important stocks, was up nearly 15 percent for the year, led by Rheinmetall, Europe’s biggest ammunition maker, with a gain, in 2025 alone, of almost 120 percent. Germany is rearming, a consequence of President Trump’s America First foreign policy, and a vast anticipated increase in military spending is spurring European stock markets.
In the United States, President Trump’s tariff policy, along with his stated willingness to bring on a recession if that’s needed to achieve what he sees as a greater good, has unsettled businesses, investors and many economists. While few are predicting a domestic recession right now, the odds of one have increased because of the uncertainty radiating from Washington.
“The U.S. economy started 2025 performing well, with strong growth, low and stable unemployment, and moderating inflation and interest rates,” Mark Zandi, chief economist of Moody’s Analytics, said in a note to clients this past week. “But now, uncertainty and angst over a mounting global trade war and big shifts in other economic policies are doing meaningful economic damage, and recession risks are rising.”
Big Tech and Everything Else
For investors, these sudden problems in the United States highlight the benefits of diversification. The strategy is far from perfect: It won’t provide the best possible returns at any given moment, but it can protect you from some of the consequences of downturns in discrete markets or securities.
Consider the total return, including dividends and interest, of a few important asset classes so far in 2025:
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The overall United States stock market, represented by the Dow Jones US Total Stock Market Index (once known as the Wilshire 5000): Down 3 percent.
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World stock markets outside the United States, as captured by the MSCI ACWI ex USA Index: Up 7.4 percent.
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United States domestic investment grade bonds, represented by the Bloomberg U.S. Aggregate Bond Index: Up 2.1 percent.
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Global investment-grade bonds, depicted by the Bloomberg Global Aggregate Index: Up 2 percent.
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Money market funds and Treasury bills, for cash holdings, as captured by the Bloomberg US Treasury Bill Index: Up 1 percent.
What this tells us is that most of the world’s key financial markets have been prospering while the total U.S. stock market has stalled. And even within that U.S. market, it’s paid to be diversified. While big tech companies have been hit hard, most other stocks have held their own. Consider two exchange-traded funds. The Roundhill Magnificent Seven E.T.F. isolates the performance of seven U.S. tech highfliers of 2023 and 2024 — Meta, Microsoft, Amazon, Apple, Nvidia, Alphabet and Tesla. It’s down 11.9 percent this year. By contrast, the Defiance Large Cap ex-Mag 7 E.T.F. strips out the Magnificent Seven stocks, while providing exposure to the other big companies in the U.S. market. It was up 1.5 percent.
Counterintuitively, and despite all the troubles in Washington, the U.S. stock market has been resilient, with the important exception of its biggest technology stocks. And to be fair, the Trump administration’s disruptive policies aren’t the sole cause of the decline of the big tech stocks. They have been richly valued for some time, as I’ve pointed out, and that set them up for a fall. What’s more startling is that the rest of the domestic market has been fairly solid so far, even in these uncertain days.
Still, there are plenty of problems ahead. The United States stock market has outpaced most others in recent years but it isn’t right now, and it may not be in the future. The U.S. bond market has performed nicely this year, but the Trump administration’s reported interest in driving down the value of the dollar, cutting taxes and restricting the role of foreign investors in the Treasury market could change the outlook.
It may be tempting to duck for cover and hold only cash in interest-bearing accounts until the political storms in the United States are over, but that’s risky, too. Predicting the market’s movements is fruitless. You could easily miss out on a big market rally.
Instead, increase your cash holdings enough to let you sleep at night but stay in the markets. Hedge your bets with holdings in many markets, including but not limited to the stock market of the United States.
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