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Economists expect听these tariffs will drag on the world economy and possibly knock it into recession, which could seriously hurt stock prices in Canada, the U.S. and around the world.听

But when the question turns to what you should do to your portfolio now to protect yourself from this threat, the best answer for long-term investors is,听as always,听not much.

Sure, some fine-tuning might be warranted, but in most cases you shouldn鈥檛 bail on the stock market now.

If your portfolio is well-balanced and diversified already, it might make sense to sit tight and do nothing.

Timing听the market is difficult. Timing it twice, more so

The average investor needs a sizable helping of stocks in their portfolio to earn decent expected returns over the long term.

But stock prices are also subject to volatile price swings, periodic corrections (declines of at least 10 per cent), and occasional bear markets (decreases of at least 20 per cent).

As of mid-morning Friday, the U.S. S&P 500 stock index was down about 16 per cent from its February peak, well into correction territory. The Canadian S&P/TSX Composite Index was also in a correction, down over 10 per cent from its late January peak.

Based on history, the best approach for long-term stock market investing is to largely stay invested in the market through its ups and downs.

The Trump threat to world stock markets is real, so it might be tempting to get out now, sit on the sidelines until all the turbulence settles down, then plan to get back in at hopefully a better price when conditions stabilize.

While that strategy sounds sensible, it鈥檚 nearly impossible to pull off successfully. It requires two market-timing decisions that听are incredibly difficult to nail for even the savviest of investors.听

The first challenge is to pick a good time to exit the stock market. But stock prices already reflect a savvy assessment of all possible outcomes, so it鈥檚 hard to gain any advantage from it.

鈥淢r. Market is a very smart guy,鈥� says Tom Bradley, chair and co-founder of Steadyhand Investment Management, referring to the allegorical character created by legendary investor Benjamin Graham to personify market behaviour.

鈥淗e is on top of all the information,” says Bradley, “so individual investors don鈥檛 have an edge there.鈥�

Current stock prices already reflect Trump chaos, as well as more positive market themes like anticipated U.S. tax cuts and the growth of artificial intelligence.

If you bail now, making a smart timing decision later to get back into the market is even tougher 鈥� the 鈥渉ardest decision in investing,鈥� says Bradley.听

No one can recognize a good re-entry point with any degree of reliability until well after the fact. Often market upturns start off promising and then fizzle to new lows.

But upswings may also happen with dramatic speed and prove sustainable despite听gloomy news, as happened in spring 2020 (during the pandemic) and in March 2009 (during the Great Financial Crisis).

鈥淭he market could recover all its lost ground without any good news,鈥� says Bradley. 鈥淚t could be just less bad news.鈥�

If you dump听your stocks at some point, that typically demonstrates a deep-seated skepticism and possible fearfulness about stock prospects.

It鈥檚 not easy to do a psychological U-turn and abruptly buy back a big position in the stock market later, at least before market prices have already risen strongly.

Chances are, though, you’ll arrive late to the party 鈥� if you get there at all.

Dan Hallett, V-P of research at HighView Financial Group, says in decades of talking with average investors who made their own timing decisions, he has encountered few who claim to have picked a good time to get out of the market.

But he has yet to encounter a single听investor who successfully timed a big buyback into markets at a better price after having bailed. 鈥淚鈥檝e never seen it,鈥� he says.

Hiding in a diversified portfolio

The smarter approach to combining downside protection while still pursuing attractive returns is to rely on the power of a diversified portfolio with a well-balanced long-term asset mix.

鈥淧eople want a place to hide,鈥� says Bradley. 鈥淢any people think their place to hide is getting out of the market. But to me, an investor鈥檚 鈥榩lace to hide鈥� is their long-term asset mix.鈥�

If you鈥檙e investing for the long-term, you generally need a balance of stocks and relatively safe fixed income (like investment grade bonds and GICs) that should reflect your financial objectives, risk tolerance and other individual circumstances.

You rely on stocks for their superior expected long-term returns. Fixed income contributes more modest expected returns, but it helps stabilize your portfolio during volatile and stressful times like we鈥檙e seeing now.

A mix of 60 per cent equities and 40 per cent fixed income is a classic target asset allocation for long-term investors with a moderate risk tolerance, but you should vary that based on your stage of life and other individual factors.

If you鈥檙e focused on shorter-term investing goals, you generally should have more short-term fixed income and less equities.

Within equities, you should diversify by sector and geography. Generally, you should have a healthy mix of not just Canadian stocks, but also U.S. and international stocks.

That should moderate the impact of Trump threats focused on Canada or other particular jurisdictions and sectors.

Modest portfolio adjustments may be justified

While you should be cautious about wholesale changes to your portfolio, modest adjustments may be warranted.

Stocks in the U.S. and Canada have generally earned strong returns over the last five years since the big market sell-off at the onset of the pandemic.

However, stock prices have fallen back moderately from their January-February peaks and there have recently been large daily price swings up and down.

If the long run-up in stock prices has created a higher equity exposure than you鈥檝e targeted, now may be a good time to sell some stocks and buy fixed income to get your asset mix back to target. The stock prices you realize by selling are still reasonably attractive by historical standards.

If the Trump chaos makes you anxious about your investments, it could be that your tolerance for investment risk is lower than you previously thought.

If that鈥檚 the case, now might a reasonable time to permanently reduce your equity mix a little to adopt a more conservative investment stance.

This article was updated from a previous version to reflect the impact on markets of Wednesday’s tariff announcement.