In the past couple of weeks, several clients have asked how the latest tariff and trade uncertainty could affect their investments. With so much in the news right now, what does it actually mean for your plan?
What do the tariffs really mean?
At its simplest, a tariff is a tax on imported goods. The additional cost can ultimately be absorbed by a business, passed on to consumers, or shared between the two.
Because Canada and the U.S. are such important trading partners, tariffs can and will have an impact on Canadian businesses and consumers. Some companies may face higher costs or difficulty selling their products into the U.S. Others may actually become more competitive if imported goods become more expensive.
As such, the important question isn’t “Are tariffs good or bad for Canada?” But rather: “Which companies are affected, how much are they affected, and are they in a position to adapt?”
For example, when looking at an individual investment, like TD Bank, we want to understand:
- Where does the company generate its revenue? TD generates 50% of their revenue in the U.S.
- Other considerations: Where are its products and materials made? Can costs be passed on? Every bank customer already knows the answer to this one… How strong is its balance sheet? Is the current share price already reflecting these concerns?
A Canadian company may generate much of its revenue in the U.S. A U.S. company like Apple depends heavily on international markets. A global company may manufacture products in several countries. Diversification matters and the country where a company is listed doesn’t necessarily tell us where its economic risks are.
What does this mean for your portfolio?
Periods of uncertainty are a good opportunity to step back and look at the portfolio and your comfort with risk.
The criteria we consider aren’t any different in times like these:
- Concentration
- Geographic exposure
- Currency exposure
- Fixed income
- Liquidity
- Potential tax consequences
Don’t confuse uncertainty with permanent damage
There will undoubtedly be businesses that are hurt by tariffs. There will also be businesses that adapt, gain market share, or benefit from changes in supply chains.
Markets may react sharply to political and economic news. That does not necessarily mean the underlying value of a diversified portfolio has changed, which is why we always look long term. Just like the recent pullback in housing prices has likely not caused you angst as long as you are not wanting to sell in the near future.
We don’t know what the next tariff announcement will be. We don’t know what trade policy will look like by year end! And we certainly can’t predict exactly how markets will respond.
Our approach
Our goal is to always try to make sure that your portfolio is designed to withstand a range of possible outcomes. We believe the best response to the uncertainty is thoughtful review.
If your portfolio is well diversified, and the risk appropriate, then there is likely no reason to make any big changes. If not, we may make some adjustments.
The news is noisy. Markets will move. Our job is to make sure your financial snapshot and plan don’t have to change every time they do.
As always, happy to chat.