Perspective on Tariffs
As you know, President Trump announced his two-part reciprocal tariff plans on April 2nd at the Rose Garden, which turned out to be much broader and more aggressive than many had anticipated. This resulted in a 10.5% decline in the S&P 500 over the remainder of the week¹.
The announced plan called for a 10% baseline tariff set to take effect on April 5th applying to all countries except for Canada and Mexico, and a meaningfully higher tariff for 60 countries to take effect on April 9th. Of these 60 countries the heaviest tariffs were levied on China at 34% (on top of the current 20%), the European Union at 20%, Taiwan at 32%, South Korea at 25% and Vietnam at 46%.
There were also some exclusions to the reciprocal tariffs notably on copper, steel, auto, aluminum, copper, semiconductors, lumber, pharmaceuticals, and certain critical minerals.
So what are tariffs?
Tariffs are a tax on imported goods, intended to encourage domestic manufacturing, protect local industries and generate revenues for the federal government. However, tariffs can also result in higher costs for consumers and for companies that rely on imported materials from abroad, and strain relationships with other countries.
What Does This Mean for You?
While market volatility can certainly be unnerving, we want to assure you that the feeling of fear or concern is totally normal. In fact, it is very human to feel that way now. In times of heightened uncertainty such as these it is important to remember to stick to our core investment principles, a few of which we highlight below:
1. Goal-Matching – The cornerstone of your investment strategy is a proactive financial plan that accounts for both your short and long-term goals ideally matched with tailored investments. When we update your plan we allocate a sufficient portion of your portfolio to bonds to immunize your withdrawals for a number of years.
2. Forecasting & Timing Lead to Regret – The economy can’t be forecast nor the markets timed, and accordingly nobody knows exactly how or when these tariff policies will play out. What we do know is that drops are temporary and rebounds happen quickly and unexpectedly, meaning that reactively selling now can be an irreversible mistake, from which a financial plan may never recover.
3. Temperament Outweighs All Else – The essential challenge to successful investing is neither intellectual nor financial, but temperamental: it is how one reacts, or chooses not to react, to events and the consistency with which one continues to act on a plan. Remember that markets are forward-looking, and efficiently price in new information such as the tariff announcement and any retaliatory or negotiations quickly, and the only way to be reasonably assured of capturing the rebound is by riding out the inevitable, but temporary, decline.
In fact, since 1970 we have seen our fair share of geopolitical events including a once in a generation global pandemic in 2020. During that period the markets have rewarded long term investors growing a $1 invested in 1970 to $99 in 2023.
Source: DFA Past performance is no guarantee of future results. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. In USD. MSCI data © MSCI 2024, all rights reserved. Data presented in the Growth of $1 chart is hypothetical and assumes reinvestment of income and no transaction costs or taxes. The chart is for illustrative purposes only and is not indicative of any investment.
During these periods of volatility, we focus on what is in our control, and there is plenty. Our trading team is proactively looking for opportunities to rebalance our portfolios by purchasing asset classes at relatively low prices. We are also using the market decline as an opportunity to reduce our client’s tax burdens by utilizing a technique called “Tax-loss Harvesting,” about which our Director of Investments and Trading recently posted an article on our website.
Quantum has successfully managed through numerous market cycles and corrections since our original founding in 2005. We know that when the masses are reacting in alarm it creates opportunities for the patient, goal-focused, long-term investor. The four most dangerous words in investing continue to be “this time is different”. Each crisis is surely unlike the others -- otherwise it would not be a crisis – but it’s never different enough to impair the innovation and long-term financial success of the great companies we invest in.
We know these are challenging times but we are actively assessing and vigilantly safeguarding client wealth. Your Quantum advisor is here for you for further discussion.
[1] Yahoo Finance S&P 500 Index SPX
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