Could Tariff Turbulence Create Opportunities for Your Financial Plan?
Tariffs are nothing new. They've been implemented at several points in U.S. history, including as recently as 2018. But there are a confluence of factors surrounding President Trump's current round of tariffs that make it worth discussing.
On today's show, we round up questions we've been receiving at Keen Wealth about tariffs to provide a comprehensive rundown of why Wall Street is interested and what you should discuss with your financial advisor.
1. A brief history of tariffs.
Tariffs are, essentially, taxes on goods imported from other countries. The typical theory behind tariffs is that by making foreign goods more expensive, consumers are more likely to buy a domestic equivalent, thereby supporting American companies, which will then lead to higher U.S. corporate earnings, higher ROI for shareholders, and more investment by those companies in U.S. jobs and facilities.
In 2018, President Trump placed a 10% tariff on $370 billion of Chinese imports, which he then increased to 25%. President Trump believed that tariffs would help to fix what he believed was an unfair trade deficit with China, as well as China's failure to protect the intellectual property of U.S. companies.
China retaliated with a 10% tariff on $75 billion of U.S. goods.
Both the U.S. and Chinese tariffs were relatively narrow, targeting things like energy, agriculture, and autos. So, some prices rose for companies and their consumers, and some didn't. Some sectors benefited -- like domestic steel manufacturers -- and others weren't affected very much.
The markets, however, saw uncertainty in the U.S. - China trade relationship and reacted with some temporary volatility.
And, essentially, that's happening again right now. President Trump's 2025 tariffs, while still relatively narrow, have created uncertainty around our trade with not just China, but with Mexico, Canada, and the European Union.
Adding to the questions on Wall Street is that President Trump hasn't been very clear about what he ultimately wants to accomplish with his tariffs. Is he trying to encourage our neighbors to secure their borders? Does he want U.S. consumers to buy more American goods, and U.S. companies to invest in more American infrastructure? Is he trying to raise wages? Or maybe all of the above? We will be keeping a close eye on further developments.
2. What does your plan need?
So, how much short-term volatility should investors expect?
Well, as I said, in 2018, the markets had some volatility but those declines weren't permanent. Eventually, the markets rebounded, regained those losses, and continued to grow ...
Until COVID hit in 2020. Which resulted in another decline, followed by another recovery.
To cite just one number, the Dow Jones Industrial Average was 23,327.46 at the end of 2018.
At the end of 2020, the Dow was at 30,606.48.
And, as I write this, despite all the turbulence we've had this year and a dip of around 10%, the Dow is still above 42,000.
Balanced, diversified investing in the markets is the engine that drives a comprehensive financial plan. Successful investors learn how to weather short-term downturns so that they can take advantage of the long-term growth that the markets have, historically, provided.
And, when you're working with a financial advisor, you might even be able to flip downturns into opportunities. At Keen Wealth, my team is constantly monitoring the markets and our individual portfolio management. Some folks might have a chance to "buy low" right now on depreciated stocks that are likely to rebound. Others might be better off selling assets while they’re down and using that loss to offset gains at tax time next year. Rebalancing a portfolio is another option, increasing investments in areas that are less likely to be affected by tariffs.
3. Stay calm and consult with Keen Wealth.
Compounding the tariff issue are the emotions you might be feeling around a variety of things at the moment: your money, your retirement, politics, etc. Keeping those feelings out of your financial planning can be extremely challenging.
But emotional money moves can be some of the most damaging, and some of the hardest to recover from. Folks who "get out of the markets" when they're down are usually just locking in losses. Worse, they might try to shift their investments into "recession-proof" products they see advertised on TV -- like gold, cryptocurrencies, or sketchy funds -- further limiting their financial options going forward. I've seen too many folks go down this road and, at the end, find themselves forced into selling off their investments just to make ends meet.
If you'd like more information about tariffs and the broader state of the economy, CLICK HERE to join our mailing list and we'll send you registration information for Matt Wilson's Q2 Market Update Webinar in April.
And, in the meantime, don't hesitate to reach out to Keen Wealth if you have questions about tariffs, the markets, or your financial plan. You shouldn't panic about the markets right now, but you also shouldn't miss out on potential opportunities to strengthen your long-term financial prospects.
About Bill
Bill Keen is a financial advisor with over 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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