Trump, Tariffs, and Trade Wars: What Should Investors Do?

With the United States announcing a series of tariffs and seemingly more to come, many investors are feeling anxious. They want to know the eventual impact of those tariffs on their portfolio and whether the impact will be temporary or long term. Perhaps, most importantly, they want to know what they can do now to offset the potential effects.

In investing, our emotions can be our worst enemy. The anxiety we feel in times of uncertainty can quickly turn to panic, and panic can lead to selling. That, in turn, can mean missing out on opportunities had we just stayed the course.

This is not to say that we must never correct our course—we indeed can and should when necessary. However, course corrections require a solid grasp of the situation and decisions that are free of the influence of emotions. Guessing at what might happen and reacting based on those guesses could cause lasting damage to our investment portfolios.

Too Early to Call

It is too early to call the impact of President Trump’s tariffs. The stock market’s recent advance seems to have cooled off a bit, yet economic indicators remain strong. Analysts’ guesses only add to the uncertainty. For example, Goldman Sachs has said the dollar will weaken even as it has rallied.

Some pundits have called for an investment shift toward U.S. small-cap companies. They believe these companies will be more insulated from the effect of tariffs than multinational companies, whose supply chains are more vulnerable to tariffs. However, some smaller companies have also been affected.

One thing is for sure; prices will increase for everything from washing machines to cars. Whether price increases will force Americans to reduce their consumption remains to be seen. Whether a slowdown ultimately hurts the economy—and portfolios—cannot be predicted, no matter what media gurus claim.

Diversification Remains Key

As always, the best defense is diversification. When you diversify, you don’t have to worry about shifting to small-cap stocks because you already own those small-cap stocks. That said, the market should not be treated like a roulette table, placing our bets (i.e., our hard-earned money) where we “think” the ball might land. We may win big, but more often than not, we will lose.

Let’s leave market guessing and timing to people with money to burn. Instead of worrying about tariffs’ potential effects, go enjoy time with your family and friends, knowing that a diversified portfolio is the best protection against the short-term moves of the market.