In the early fall of 2024, the American economy was doing much better than that of other countries around the world. An Economist magazine cover story called the American economy the envy of the world. 

Since the beginning of January, though, the stock market has declined 5%, and consumer spending and business sentiment are both down, too. Goldman Sachs predicted at the end of March that the risk of recession in the next 12 months is up to 35%. U.S. manufacturing activity contracted in March, with concerns about tariffs and pricing pressures. 

There’s not only a heightened risk of recession, but also higher inflation because of tariffs—which are taxes on imported goods. 

“What seems to be happening is that there are both policies being put in place that would be damaging to the economy, and a lot of uncertainty about what those exact policies would be,” says Michael Klein, William L. Clayton Professor of International Economic Affairs at The Fletcher School. 

“A point made in a recent podcast I did with Mark Zandi, chief economist at Moody’s Analytics, is that if you are a CEO of a multinational firm, you wouldn’t be investing now at all, because you have no idea what the landscape is going to look like,” says Klein, who is also executive editor of EconoFact, a non-partisan publication focused on economic and social policies. 

Tufts Now talked to Klein about the implications of the economic turmoil for personal investing, especially in retirement accounts.

What advice would you give for people looking to protect their retirement assets in economically turbulent times—for those about to retire and those starting out?

That age distinction is very important. If you’re about to retire, you’re worried much more about volatility in your assets because you’re going to start drawing them down. You might move to assets that have less volatility, like bonds or even cash.

If you’re younger, even though stocks see a lot of volatility, over a longer period they offer a good return. So you’d probably just want to try to hold onto your portfolio and not adjust it too much.

It’s very hard to time the market—to buy when at the bottom of the market or to sell when it’s at a peak. The better idea is just to buy and hold, if you have a very long perspective. 

But if you have a shorter perspective, closer to retirement, you’ll have some combination of Social Security payments, which hopefully are going to be stable and safe, and other kinds of retirement returns. Again, for those you might want to think about investing where there’s less volatility, where you have a better idea of what your retirement income stream will look like going into the future.

So if you’re retired or about to retire, you probably should shift from stocks to bonds or stocks to cash?

You should be doing that gradually anyway. It’s a little heightened now because of the increased volatility. But in general, there’s sort of a rule of thumb that as you age, you want to be shifting your portfolio more and more towards bonds, which offer typically a lower return, but less volatility than stocks, which offer the possibility of higher returns, but are more volatile.

For people in their 20s and 30s, what’s the best approach financially? 

The best thing is for younger people to make a commitment to save for retirement and not take on very expensive debt, like credit card debt. Typically, younger people have a lot of debts that they’re paying back—or they’re acquiring debt through mortgages. Credit card debt is incredibly expensive, so you don’t want to carry credit card debt.

If you had a student debt, you’d want to pay that off first, I presume.

To the extent you can—you have to worry about prepayment penalties. But yes, you want to pay that off when you’re young and be debt free as soon as you can. That requires living not only within your means, but even more within your means so you can pay off your debt.

What’s the bottom line on investing for the future? 

The basic idea is you want to diversify, and you want to also be aware of what the fees are if you buy mutual funds. People don’t really shop around when it comes to finance. You see a lot of advertising for big financial firms and people respond to that, but there are lots of different kinds of funds, and some charge much higher fees than others. 

And again, there are a lot of other things beyond your portfolio that matter for your financial wellbeing: paying off your debt, trying to live within your means, being prepared for extraordinary expenses. To the extent that that’s possible, these things are just as important. They might seem more mundane, but they’re just as important as your portfolio choice, especially when you’re younger.

What about diversifying into things like crypto or gold? 

While there’s volatility in the stock market, that’s nothing compared to the volatility in these very, very speculative assets, which have no inherent underlying value. Their value depends on other people valuing them—and things like that can reverse very quickly and be really damaging to your investments. There’s an old saying: If it seems too good to be true, it probably is.

The price of gold has gone up about 50% or so in the last two years, for example. But what goes up can also go down. And again, while it has some value for commercial purposes, its big rise is just reflecting uncertainty. Because uncertainty has been spiking, the price of gold has been surging, but it’s not something that I would want to use as part of my portfolio.

You mentioned Social Security—are there concerns about its financial viability?

It is a pay-as-you-go scheme funded by current workers. The native-born workforce growth is basically flat. If you have a situation where the number of retirees relative to the number of working people rises too much, it’s going to be hard to finance in a pay-as-you-go system. That speaks to one of several reasons why immigration is very important for this economy. 

There could be adjustments to Social Security to make it solvent over a longer horizon, like increasing the retirement age, having it be means tested, reducing the payments, not linking it to inflation. 

But all these things are political decisions. Social Security has been called the third rail of American politics. It’s seen as very politically dangerous to try to adjust Social Security payments downward. 

Social Security is a great success that’s lowered the poverty rate among the elderly dramatically since the 1930s. Many people depend upon Social Security for a majority of their retirement income, and there’ll be real challenges to these people’s wellbeing if Social Security is cut.