Lakeland Ledger articles

Protecting Your Portfolio from Tariffs and Trade Wars

Matthew Treskovich, CPA/PFS, MBA, CFP®, CMA

For much of the past few months, talk of tariffs and trade wars has dominated the news. For the past several decades, US trade policy has consistently favored globalization. Trade policy has favored the easy movement of goods across borders. US policy has also allowed the easy movement of production from the United States to other counties. Policymakers in the US and abroad now seem to be more willing to enact policies that restrict trade. This could indicate that globalization is decelerating. There are other signs of declining globalization, with production of goods being moved back into the United States.

What does a decline in globalization mean for investors?

Globalization has generally been a positive trend for investors. Large US companies have generally benefited by being able to move production overseas. This allowed those companies to reduce costs and increase profits. Moving production overseas has also had negative impacts on investors. Almost seventy percent of the US economy is personal spending. Lower wages and job losses due to globalization have reduced personal spending. This effect has offset some of the benefits of globalization for investors.

The biggest risk to investors is the uncertainty that could come with shifting to a less-globalized system. In the stock market, uncertainty usually means volatility. Higher volatility doesn’t always mean lower returns, but it can cause investors to make mistakes that can cost them money.

The headlines move faster than the fundamentals

Headlines in the news change every day, but economic fundamentals don’t change overnight. Talk of tariffs has been in the news since January. So far, only a small number of imports are subject to new import taxes. Other countries are starting to enact their own tariffs in response, but it will be time for the effects to show up in the economy. If tariffs have a large negative effect on the economy, it is possible they could be removed as quickly as they were created.

For long term investors, the key to surviving a trade war is having a properly diversified, well-balanced portfolio. Investors who have concentrated positions in companies that could be hurt by tariffs should consider diversifying their portfolios. Long term investors should resist the temptation to make changes to their portfolios based on short-term news. This is especially true when the news is more about politics than economics. In the short run, escalation of tariffs and talk of trade wars could cause market volatility. Long term investors should focus on their financial plan instead of the headlines. Investing in great companies in America and the world is still the best way for investors to achieve and maintain financial independence.

Matthew Treskovich is the Chief Investment Officer for CPS Investment Advisors.

By Peter C. Golotko, CPA/PFS, MBA, and Matthew Treskovich, CPA/PFS, MBA, CFP®, CMA

People often think estate planning is only for the wealthy. Actually, just about everyone who owns property or has money needs an estate plan. Estate planning is more than deciding what happens to your property when you’re gone. It also includes the planning during your life that leads to creating and safeguarding assets like your retirement savings. Estate planning is an important part of protecting your financial security.

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The first major stock market correction in over a year appears to be in the rear view mirror, but many investors are still nervous. Market commentators have decided to declare that “interest rates” were responsible for the initial drop in early February, and the President’s announcement on trade policy and tariffs was the reason for the second drop later in the month.

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Legendary investor Warren Buffet, CEO of Berkshire Hathaway, released his annual letter to shareholders on Saturday. The annual letter from the “Oracle of Omaha” is widely read by financial advisors and individual investors alike. Investors have a very good reason to pay attention to Buffet’s comments. Buffet’s strategy of investing in individual stocks and paying fair prices for great companies has beaten the S&P500 index since 1964. This year’s letter has three lessons every investor should understand.

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