Trade tensions, tariffs and your portfolio

What you need to know

Written by Nitin Manohar
June 30, 2018

With so much going on in the world, many of us are glued to the headlines. This isn’t a bad thing – no one here would argue that you shouldn’t be informed about current events – but that said, knowledge can sometimes lead to stress when it’s not placed in context. For example, if you’re reading headlines about trade and political tensions, new tariffs and NAFTA negotiations, it may lead to concerns about your business or portfolio. Any sort of instability can invoke this reaction, but the question is this: do you really need to be worried about your investments?

The short answer is no. While these issues are complex and deserve your attention, there is a major distinction between worrying and being proactive. The latter is how we approach times like these – smartly and cautiously, but without dramatics or over-reaction. In short, there is no reason to base major portfolio decisions on headlines that are sometimes sensationalized and rarely framed in context that relates to your wealth. We don’t believe anyone should be in a panic, but naturally, we are monitoring current events as well as the markets and making informed, strategic decisions on your behalf. Here’s what you need to know, along with some insight to our approach.

Be defensive and think domestic

There’s no need to lose sleep over the headlines, but you can make some wise moves to protect your assets and keep your portfolio strong. One way to do this is to buy domestic – namely, things that don’t trade internally, so there’s no tariff involved. These companies don’t depend on export and subsequently, are largely unaffected by trade tensions.
Diversify and focus on non-NAFTA stocks

International diversification is always important but in times like these, it’s not a bad idea to focus on non-NAFTA stocks. The idea is to stay diverse without putting too much emphasis on stocks that may be affected by political events. Global diversification generally helps a portfolio trend upward over time, and while there are always minor setbacks, it’s best to stay disciplined and focus on the long-term.

Remember – things aren’t always what they seem

Trade tensions, NAFTA and tariffs are all the news right now, but it’s not the first time we’ve dealt with these issues. Let’s discuss a specific example for a moment. The U.S. likes Canadian wood – it’s popular with builders and is always in demand. Last year, British Columbia’s West Fraser Timber was hit by tariffs. The concern was that the stock would suffer as Americans went elsewhere for their wood. The actual result, as months went on? The U.S. kept buying from West Fraser Timber because their product is good and still the top choice. While prices went up, buying timber from BC was still cheaper than buying it in the U.S. (particularly when you factor in the exchange rate). There was an added cost to U.S. buyers but it was not so dramatic that sales were significantly affected. The stock stayed strong and is now at a high.

Does this happen every time? Of course not – but it’s a great remind not to react before the result has actually been seen.

The bottom line

None of this information should be used to make investments on your own – it is simply for your information. We can help you with personalized, strategic portfolio management that reflects your needs and goals as well as the economic climate. To learn more, please contact us.