Tariffs Are Back in the Headlines: What Should Investors Do?
The White House has announced new tariffs: 25% on Canada and Mexico, and 10% on China . If and when these tariffs take effect, many questions remain:
- How inflationary will these tariffs be?
- Will companies absorb costs or pass them to consumers?
- How will global markets react?
It’s tempting to think of this situation as a riddle that can be solved with the right information. However, in reality, it’s more like a puzzle with missing pieces. The relationships between tariffs, currencies, interest rates, inflation, and markets are complex and constantly shifting. Predicting the exact impact requires accounting for countless variables:
- How will trading partners respond?
- What ripple effects will hit supply chains?
- How will consumers and currency markets adjust?
These are just the known unknowns. Then, there are the unknown unknowns. Even the most sophisticated models can’t predict every outcome.
Market Reactions and Investor Behavior
Markets are efficient. They absorb new information, adjust prices, and move on. However, when significant policy changes create uncertainty, like new tariffs, markets may experience short-term volatility. Historically, trying to time the market or react to short-term headlines has hurt long-term performance more often than it has helped. “Stock picking” and “market timing” strategies rarely lead to sustainable success because no one can consistently predict short-term market trends or events.
Investors often feel pressure to make adjustments based on headlines, but the best approach is to maintain a long-term perspective. Instead of reacting emotionally, focus on what has historically worked for investors.
The Advantage of Long-Term Investing
Long-term investors have an advantage: they don’t need to react to every headline or market move. Instead, they should focus on strategies that have stood the test of time.
1. Focus on the Long-Term
History shows that investors who stay calm and focus on the long-term tend to be rewarded, even amid market fluctuations and changes in trade policy. Market dips caused by political events or economic uncertainty often recover over time, making short-term panic selling a costly mistake. A well-thought-out investment plan should account for periods of volatility.
2. Stay Broadly Diversified
Diversification isn’t about avoiding volatility altogether, it’s about being prepared for many possible outcomes in the face of countless unknowns. By spreading exposure across asset classes, sectors, and geographies, investors can help weather uncertainty without relying on perfect predictions. A globally diversified portfolio is designed to help mitigate the impact of economic disruptions in any single region or industry.
3. Maintain a Disciplined Approach
Investing is most successful when approached with discipline and patience. Sticking to a plan, rebalancing periodically, and avoiding emotional reactions to market fluctuations can help investors stay on track. We believe discipline is especially important during times of uncertainty, as short-term fears can lead to long-term financial missteps.
4. Consider the Bigger Picture
Tariffs are just one piece of the broader economic landscape. While they may have short-term impacts, other factors, such as interest rates, corporate earnings, and consumer spending, play a larger role in shaping long-term market performance. Staying focused on a well-diversified financial plan can help investors navigate these challenges.
Final Thoughts
In a world full of puzzles with missing pieces, we believe discipline and diversification remain our best tools. Tariffs and trade policy changes will continue to make headlines, but investors should resist the urge to react impulsively. Instead, staying focused on long-term goals, maintaining a diversified portfolio, and practicing patience can help build financial resilience. If you’re unsure how to position your portfolio for the future, consider speaking with a Savant financial advisor to ensure your strategy aligns with your long-term objectives.
Chip Kalousek
Senior Investment Strategist / Client Advisor
CFA®