The early months of President Trump’s second term have tested investors’ nerves.

After delivering blockbuster gains in 2023 and 2024, stocks continued to rally but then collapsed as Trump threatened reciprocal tariffs against all our trading partners.

American exceptionalism—the notion that the U.S. equities were the ideal place to invest—seemed to evaporate with the rollercoaster ride of tariffs and the drama in Congress where Republicans struggle to demonstrate genuine concern about historically large federal deficits.

Stocks have recovered and hit new highs, but many investors worry that this may be a good time to trade in their stocks for fixed-income investments or to shift from U.S. to foreign equities.

Take heed.

Tariffs may slow the economy, and a recession is still possible. But governments in China, Japan, UK, France and Italy also carry large debt and every region has problems.

Japan is in a demographic downdraft with a low birth rate and nearly 30% of its population over 65.

China is suffering from a property bubble and an economic development strategy that must change or stall.

Since the end of 2022, China’s exports are up 33% while imports have flatlined. Its factories have too much capacity and face growing resistance in foreign markets to accepting more of what it makes. It can’t seem to generate enough domestic demand to sustain growth, and its expansion will slow.

New investor interest in Europe is driven by a defense buildup, which aims to raise core spending on troops and hardware to 3.5% of GDP. But Europeans will be borrowing too much, because their governing coalitions won’t ask voters to scale back their generous social programs to make budget space for defense.

Along with those other government financing needs, a debt-driven rearming will require European central banks to pursue accommodating monetary policies and accept more inflation. Otherwise, ballooning government borrowing will crowd out private investment.

More importantly, Europe lacks a competitive technology sector to rival America’s Magnificent 7—Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla—and Broadcom, which recently replaced the car maker to become the 7^th largest U.S. company by market value.

These companies and their domestic and Chinese rivals are investing heavily in Artificial Intelligence and other technologies that should boost productivity and incomes. The Europeans are largely nonparticipants.

Over the last 50 years, the United States has created 241 new companies that have market capitalizations exceeding $10 billion, whereas Europe has created just 14.

That’s no surprise considering that Europe’s pool of venture capital is one-fifth the size of ours.

It may be prudent to bet more broadly than just U.S. stocks, but that’s not a queue to radically shift out of U.S. equities and into foreign stocks.

Regarding the tradeoff between fixed-income investment and equities, shifting out of stocks likely dooms the ordinary investor to unacceptably low inflation-adjusted returns.

Trump’s crackdown on immigration will create labor shortages and boost wages. And his tariffs will compel rearranged supply chains that lower productivity and raise costs too.

Trump likely will replace Jermone Powell with an uber-dovish Federal Reserve Chairman.

Consequently, inflation will be closer to 3% than 2%, but nominal interest rates are not likely to drift much higher.

Seen in this context, the 10-year Treasury at about 4.2% is hardly high, and the real return on fixed-income assets is likely to be 2% or less.

Taking money out of stocks to ride out all the turbulence created by Trump’s erratic policy pronouncements is really an exercise in market timing.

Sooner or later equity markets will become inured and just push forward. Guessing when that will happen is a fool’s journey.

Until you are within 10 years of retirement, my best advice is to keep enough of your portfolio in fixed-income assets to accommodate emergencies like unemployment and distribute the rest into stocks.

Unless you need more ready cash, put 25% into fixed-income assets, 60% into domestic stocks and 15% into foreign equities.

If you feel it’s tough to know which domestic stocks to choose, picking foreign stocks only multiplies the complexities and risks. Everything you can’t foresee in domestic markets is an order of magnitude larger abroad unless your work affords you deep insight into a specific foreign sector.

If you index your domestic equities, then it makes even more sense to do the same with your foreign holdings.

Buy an S&P 500 fund like those offered by Vanguard, Fidelity and others and an international index that excludes U.S. stocks like the Vanguard Total International Index Fund.

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Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.