by David Young, President
Market Overview:
The first quarter of 2025 was marked by significant volatility, mainly driven by rising trade tensions and substantial tariffs imposed by the U.S. administration. The S&P 500 dropped by 4.3%, representing its worst quarterly performance since 2022. Notably, it took the S&P 500 only 16 days to decline 10% from its February peak, reflecting investors’ heightened anxiety. The Nasdaq Composite experienced an even sharper decline of 10.4%.
Technology stocks faced substantial declines, with major companies such as Tesla and Nvidia falling approximately 36% and 20%, respectively. Conversely, gold surged by 19%, reinforcing its status as a safe-haven asset amid growing uncertainty.
Catalysts for Market Volatility:
The central cause of market turmoil was President Donald Trump’s announcement of extensive tariffs, effective April 2, 2025, termed “Liberation Day.” A baseline tariff of 10% was imposed on all imports, with significantly higher rates targeting specific countries and products. China’s immediate retaliation, which involved imposing a 34% tariff on U.S. goods, intensified fears of an expanding global trade war, pushing the CBOE Volatility Index up nearly 51%.
Following the first quarter reporting period that ended on March 31, 2025, market reactions became even more dramatic. On April 3rd, the S&P 500 fell by 4.88%, the Nasdaq dropped by nearly 6%, and the Dow Jones Industrial Average declined by almost 4%. The sell-off intensified on April 4th, with the S&P losing an additional 6%, the Dow decreasing by 5.5%, and the Nasdaq Composite falling by 5.8%.
This volatility has significantly weakened investor and consumer confidence, which is currently at its lowest level since 2021. The labor market is also showing signs of strain, with increasing layoffs and rising recession forecasts from economists.
Performance of Paragon Portfolios:
Despite market turmoil, during the first quarter reporting period ending March 31, 2025, Paragon’s portfolios—Managed Income, Fast Movers, Fundamental 20, Liquidity Factor, and Top Flight—all surpassed their benchmarks. Managed Income notably achieved a solid 1.9% gain, demonstrating resilience in a challenging environment. Top Flight remained relatively stable, posting a slight increase of 0.11% against the S&P 500’s decline of 4.3%. Outperforming the benchmark in such volatile conditions underscores the strength of a disciplined, strategic investment approach.
(For a thorough portfolio performance breakdown, please refer to Nate’s detailed review in the following section.)
Navigating Investment Decisions Amid Tariffs
Short-Term Implications of Tariffs:
In the short term, tariffs heighten market uncertainty and volatility, disrupt global supply chains, and negatively impact investor and consumer sentiment. Companies that depend heavily on imported goods encounter immediate cost pressures, leading to shrinking profit margins. Simultaneously, consumers frequently face higher prices that diminish their purchasing power and impede economic growth.
Positive Long-Term Effects of Tariffs:
Despite the immediate disruptions, tariffs can lead to positive long-term outcomes. By raising the relative cost of imports, tariffs promote domestic production and consumption. This shift can revitalize local industries, generate job opportunities, and bolster economic resilience. Additionally, protection from international competition can encourage domestic businesses to innovate, improve efficiency, and enhance global competitiveness over time. Sustained tariffs may also reduce trade deficits and increase economic independence, although these benefits greatly depend on well-managed domestic economic policies.
Short-Term vs. Long-Term Investing: Choosing the Right Strategy
Investors often discuss short-term and long-term strategies, especially during volatile times. Short-term investing focuses on seizing immediate gains or quickly minimizing losses, influenced by news events and daily market fluctuations. While this approach can yield profits, it is also risky and stressful, frequently leading to higher trading costs and tax implications due to the volume of transactions.
Long-term investing, in contrast, involves holding positions for several years or even decades while focusing on economic fundamentals and broader market trends instead of short-term volatility. Long-term investors typically experience less stress, as they tend to avoid impulsive decisions during market downturns. Historical evidence strongly supports long-term investing, demonstrating that markets ultimately recover and reward patient, disciplined investors. Furthermore, long-term investors benefit significantly from compound returns, which enhance wealth accumulation despite temporary fluctuations.
What does long-term investing mean at Paragon? Why do we emphasize a long-term perspective? Our flagship and longest-running portfolio at Paragon is the Top Flight Portfolio. Since its inception on January 1, 1998, and through March 31, 2025, Top Flight has achieved a total return of 1710%, compared to 1107% for the S&P 500. These returns are net of any management or brokerage fees. Please refer to the disclosures on page 7.
Why is this important? If you had invested $500,000 in the Top Flight portfolio since its inception in January 1998, it would have grown to $8,550,000 over those 27 years. This demonstrates the essence of long-term investing. The money has time to recover during market declines, and it is allowed to grow through compounding over time.
If you opened that account but then withdrew the money when the markets declined or for other reasons, you likely would not have realized an over $8 million gain and could have even lost money. Investing for the long term is how we help you build wealth.
Keys to Investment Success:
Successful investing begins with clearly defined financial objectives. Whether you’re planning for retirement, purchasing a home, funding education, or accumulating wealth, having specific goals will direct your investment choices and strategies.
After establishing your objectives, it is essential to assess and comprehend your risk tolerance. Risk tolerance varies significantly depending on an investor’s age, financial situation, and personal comfort with uncertainty. Younger investors can generally accept greater market risk due to their longer investment horizons, while older investors usually prioritize protecting their accumulated wealth and ensuring a stable income.
Patience is essential for successful investing, especially in volatile markets like those we have faced this year. Markets will inevitably fluctuate; however, patient investors who remain committed to their strategic plans will benefit from eventual recoveries and compounded growth.
However, patience should not imply inactivity. It is essential to regularly evaluate and potentially adjust your risk tolerance and investment strategy as your personal circumstances evolve. An investor’s risk profile at age 30 can vary significantly from that at age 70, reflecting changing priorities from aggressive growth to steady income and capital preservation.
Clearly defining objectives, aligning strategies with your risk profile, exercising patience, and consistently reassessing your approach create a strong foundation for lasting financial success.
Conclusion:
The current market environment remains challenging and uncertain. However, a disciplined and diversified investment approach that emphasizes well-defined objectives, patience, and risk management will effectively position investors to withstand volatility and ultimately benefit from the market’s long-term potential.
We appreciate the trust you place in us to manage your investments. Please feel free to reach out if you would like to review your strategy or if you have any questions or concerns.