If you follow the news even casually, you’ve probably seen the term “trade war” being used on a regular basis. It’s a term that hasn’t been relevant in decades. It’s making a comeback on the global stage, however, and it could have an impact on financial markets and your investments.
Simply put, a trade war happens when two countries place increasing tariffs on each other’s products. Such a scenario is currently unfolding between the United States and China, as both countries have imposed tariffs on the other’s products.
The global economy has become more interconnected than ever. Many products are built with parts and materials sourced from multiple nations. Many companies operate around the globe. Tariffs can have ripple effects, both positive and negative, throughout the broader economy.
The debate about whether tariffs and trade wars are wise economic strategies can be left to the politicians. For the average American, the question is what these developments mean for their financial future and their retirement. Below are a few ideas on how to plan for nearly any type of economic uncertainty, including a trade war. Your financial professional can also help you review your strategy and make changes if needed.
Don’t make rash decisions.
When you see market volatility or uncertain economic news, it can be tempting to follow your gut and make a drastic change. While a trade war may lead to changes in the economy, it doesn’t mean your long-term strategy is no longer appropriate. Resist the urge to dump your investments and rush to safety.
Tariffs and trade issues can affect the earnings and profitability of specific companies. However, it’s nearly impossible to sort out the winners and losers in advance. Market timing efforts and short-term market predictions are notoriously unreliable. Instead of trying to avoid all possible risk, take this time to revisit your strategy and determine if it’s still aligned with your risk tolerance and long-term goals. It may be time to make some adjustments. However, don’t make those decisions based solely on tariffs or any other piece of economic news.
Review and rebalance.
Does your strategy rebalance automatically? Rebalancing is an important part of any investment or retirement strategy. You likely have a diversified portfolio that’s spread across a number of different assets, all of which have various levels of performance. Some increase in value while others decline. Over time, your allocation may get out of alignment because of the changes in various asset class values.
Rebalancing periodically resets your allocation back to your desired levels. That means selling assets that have increased in value and buying more of those assets that have declined. It’s an effective way of staying consistent with your strategy and also taking advantage of changing values.
Many accounts, such as 401(k) plans and IRAs, offer automatic rebalancing features. If you’re not sure whether yours does, talk to your financial professional. They can help you make sure your strategy is rebalanced on a regular basis.
Take advantage of fluctuation with regular contributions.
Regular contributions to your investment accounts are another great way to take advantage of fluctuation. You may already do this through your 401(k) or IRA. If you contribute the same amount each week or month, you’re taking advantage of a strategy known as dollar-cost averaging.
When you contribute a set amount on a regular basis, you buy more shares when values are down and fewer shares when values are high. That minimizes your average cost per share, which can help you boost performance. During times of volatility, dollar-cost averaging can be especially helpful. If you don’t have automatic contributions set up on your accounts, talk to your financial professional.
Ready to review your investment strategy? Let’s talk about it. Contact us at BAM Advisory Group today. We can help you analyze your approach and make sure it’s aligned with your goals. Let’s connect soon and start the conversation.
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18193 - 2018/10/24
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