If you’ve been following the news lately, you’ve likely heard much about tariffs and market volatility. You may be concerned about how these recent changes could affect your investment portfolio. Let’s break down what’s happening and how it may impact you:
Why Are Tariffs Used?
While tariffs may seem like a straightforward economic tool, their purpose is often more strategic than merely raising import prices. They can be employed to help protect domestic industries, generate government revenue, and facilitate trade negotiations.
In this case, the tariffs’ intent is to encourage countries to engage in negotiations, whether to address unfair trade practices or tackle broader geopolitical concerns.
Additionally, these tariffs aim to realign global supply chains and promote the return of manufacturing to the U.S. This shift could, in turn, strengthen both national and economic security, a vulnerability that became painfully evident during the COVID-19 pandemic.
In a strong economy, tariffs can also generate significant government income, which is a key measure in confronting America’s mounting debt. However, if the economy slows down, the uncertainty surrounding tariffs may lead to lower interest rates, reducing borrowing costs and providing an alternative form of fiscal relief.
The Risks
Tariffs may serve strategic purposes, but they also come with inherent risks. Markets and businesses generally dislike unpredictability, which often accompanies these policies. When new tariffs are announced, markets tend to react quickly, influenced by emotions, headlines, and speculation, leading to short-term fluctuations. However, the more significant effects usually become apparent later on. Businesses may experience rising costs, disrupted supply chains, or pressure to change how they operate, and these changes can slow growth over time.
That’s why the speed at which trade disputes are resolved is crucial. The longer uncertainty lingers, the more difficult it becomes for companies to plan, invest, and hire confidently.
In the short term, market sentiment and narratives often drive price fluctuations, but over time, business fundamentals will likely determine where prices ultimately settle.
What Should Investors Do?
Stay focused on your strategy. Emotional reactions, whether overly optimistic or pessimistic, can be dangerous. The market is experiencing wild swings on a daily basis based on headlines about the ongoing negotiations. However, in the long term, the market price will likely depend on how the ultimate policy affects business fundamentals.
For Retirees:
- Plan Ahead: Aim to secure at least three years, ideally ten, of living expenses to help you ride out market volatility with less stress.
- Avoid Actions Based on Panic: It can be helpful to avoid binary decisions like going all-in or all-out of the market. Try to stay calm and stay the course!
For Younger investors:
- Think Optimistically: Volatility can actually work in your favor. Consider using the uncertainty as an opportunity to purchase high-quality investments at a discount.
- Stay Disciplined: Do not let the uncertainty derail your strategy or scare you away from staying invested. Buying through turbulence can offer great rewards.
The Bottom Line
The tariff debate may be complicated, but your investment strategy does not have to be. Although every individual has unique circumstances that call for a personalized investment strategy, these core principles can often help even when uncertainty arises:
✅ Stay Disciplined
✅ Stay Diversified
✅ Stay Invested
How A Financial Advisor Can Help
Tariffs and market fluctuations can feel overwhelming, but you don’t have to navigate them alone. Our team of CERTIFIED FINANCIAL PLANNER® professionals is here to help.
With personalized guidance tailored to your unique needs and goals, we’re dedicated to helping you navigate every step of your financial journey with confidence. Schedule an introductory phone call with us at 205-879-5001.
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Marshall Clay CFP, J.D., is a Partner and Senior Advisor at The Welch Group, LLC, specializing in providing Fee-Only investment management and financial advice to families throughout the United States. Marshall is a graduate of the United States Military Academy in West Point, New York, the Cumberland School of Law in Birmingham, Alabama, and is a CERTIFIED FINANCIAL PLANNER™. In addition, Marshall is a frequent guest on local television stations as an expert on various financial planning matters.
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