MW Americans are betting too much of their retirement on the U.S. stock market

By Brett Arends

The first 100 days of Trump's second term show how diversification can benefit your 401(k)

Congratulations to all who successfully prepared their retirement accounts for the first 100 days of the Trump administration by moving their money into gold bullion (GC00), silver (SI00), Japanese yen FXY, Mexican pesos $(USDMXN.FOREX)$ and the stocks of countries other than the United States.

Bravo. As of Friday's close, gold is up 25% since the inauguration, and silver is up 13%. The Swiss franc FXF, another classic safe-haven asset, has risen 11% against the U.S. dollar since President Donald Trump took office on Jan. 20, and the Japanese yen is up 9%. The Mexican peso has risen nearly 7%. The stock markets of Europe, Australasia and the Far East, as measured by the iShares Core MSCI EAFE index IEFA, have earned you 13%.

For all of you who moved your 401(k) plan into pesos on Jan. 17, this Bud - or, I suppose, this Corona - is for you!

Sadly, hardly any Americans have these assets in their retirement portfolios, at least not in any meaningful amounts. Instead, they entered the second coming of Trump holding nearly all their investments in U.S. stocks.

Alas, these have not fared so well.

Since Trump's inauguration, the S&P 500 SPX has lost 6% of its value, and the Russell 2000 RUT index of smaller U.S. company stocks has lost 12%. Let these investors at least be thankful for the president's dramatic policy U-turn on tariffs. In the immediate aftermath of his April 2 "liberation day" trade-war proclamation, the S&P was down as much as 17% and the Russell 2000 was down by nearly 25%. Ouch.

Vanguard's How America Saves report shows just how exposed, or overexposed, the average U.S. investor is to volatility in U.S. stocks. The typical U.S. investor with a retirement plan holds 79% of their assets in stocks and nearly all the rest in cash and bonds, most of it through "balanced" or "target-date" funds that combine stocks and bonds.

Worse, data from the Investment Company Institute, the trade association for mutual-fund companies, confirms that the overwhelming majority of U.S. investors' stock investments are in U.S. stocks. (Investments in domestic equity mutual funds account for about 80% of the money held in all equity funds, and the other 20% also includes "global" funds, which are in turn about 70% invested in U.S. stocks.)

There is no rational reason to hold nearly all of one's investments in U.S. stocks. Economists call this "home country bias" - the tendency of investors to keep too much of their money in the stocks of their own country.

Those who defend this habit by pointing to the huge outperformance of the S&P 500 as compared with foreign stock markets over the past decade are suffering from another economic fallacy - known, suitably enough, as "recency bias." This is the tendency to give outsize weight to the most recent events, ignoring all those times, such as the 2000s, when U.S. stocks did much worse than international stocks.

Since the market's close just before Trump's inauguration, someone with their money in the Vanguard Total (U.S.) stock-market index fund VTI has lost 8%. But someone in the Vanguard Total (world) stock-market index fund VT is down just 3%. Someone who had split their money equally between the Vanguard U.S. fund and, say, the Vanguard FTSE Developed Markets fund VEA would be level.

Meanwhile, the Magnificent Seven grouping of megacap tech stocks MAGS has lost 16% of its value, after earlier falling 27%. It's almost as if betting on last year's mania - at sky-high prices - might be bad for your wealth.

There are otherwise sane individuals who think they are diversified because they have half their money in the S&P 500 and half of it in the Nasdaq Composite COMP. If they continue to lose money, count on them blaming Donald Trump or Federal Reserve Chair Jerome Powell - or possibly Joe Biden, or the Clintons, or George Soros.

Anyone, in other words, but themselves.

As the first 100 days of the Trump administration show, reliance on U.S. stocks to the exclusion of other assets may leave investors especially exposed to policy vagaries emanating from Washington, D.C. We are barely 7% of the way through this administration's term in office. Enjoy.

At least bonds have largely held up, despite also experiencing some turmoil earlier this month. U.S. Treasury bonds GOVT and inflation-protected Treasury bonds TIP are up about 3% each since the inauguration. Investment-grade corporate bonds LQD have earned you 2%, and high-yield bonds JNK effectively nothing.

If you hold your 401(k) in a target-date fund, how it fared largely depends on how "aggressive" it is, meaning how much it has in stocks. Vanguard's LifeStrategy Growth Fund VASGX, which is 80% invested in stocks, is down 1.5% since the start of Trump's term. Vanguard's LifeStrategy Income Fund VASIX, which is 80% invested in bonds, is up 1.5%.

All of this underscores one key factor: Volatility can be the long-term investor's friend. If you make regular contributions to your 401(k) every week, two weeks or month, and some of those contributions were made during the market downturn a few weeks ago, you benefited.

Trump's first 100 days: uniquely bad?

The first 100 days of Trump's second term have been astonishingly turbulent in many ways. But if you think the stock market's performance is uniquely or even unusually bad, think again.

The S&P 500 fell by 20% in the first seven weeks of Barack Obama's first term in office in 2009, and the Russell 2000 fell by more than 25%, before rallying sharply and quickly making back all the losses. (Obama, to be fair, had inherited a collapsing economy. Trump, despite the best efforts of spin doctors to convince people otherwise, did not.)

Data from FactSet going back to the 1930s show seven presidential terms - roughly one in three - when the S&P 500 fared about as badly as in this one, or even worse, during the first 100 days.

Franklin Roosevelt's second term in office, which began in 1937, saw a 7% slide in the S&P 500 during the first 100 days. His third term began with a 12% slump. One could blame external events: the Great Depression in the first case, and World War II in the second. In early 1941, it looked like Hitler was going to win the war - an outcome possibly not bullish for the U.S. stock market.

Richard Nixon's second term, which began in 1973, started out with a 10% slide. Investors' moods were hardly helped by rising stagflation, which took hold that year and hung around for the rest of the decade, or by the unfolding political paralysis caused by the Watergate scandal, which erupted almost immediately after the inauguration.

The market also fell about 5% in the first 100 days after the inaugurations of Harry Truman in 1949, Dwight D. Eisenhower in 1953 and Jimmy Carter in 1977, and 7% during the first 100 days of George W. Bush in 2001.

If you want to ignore the law of small numbers, you could say that based on the performance of the S&P 500 index in the 100 days after inauguration, only four presidential terms since the 1930s have begun as badly as Trump's second term: Roosevelt's in 1937 and in 1941, Nixon's in 1973 and Bush's in 2001. You could also warn that this is ominous for investors: All four of those terms ended up being mediocre or bad for the stock market.

On the other hand, Truman's second term and Eisenhower's first also began in the red, and in both cases the stock market later boomed.

The only obvious conclusions one can draw? Markets are volatile, policy craziness in Washington leads to volatility, and owning bonds and international stocks can dramatically improve your diversification. All of which investors knew, or could have known, way back in January.

-Brett Arends

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April 28, 2025 12:52 ET (16:52 GMT)

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