We've talked for weeks about the possibility of a trade war with China. But, President Trump has now extended that in the last number of days to many of our allies. What does that mean for you?
A little over a week ago, President Trump announced that in addition to the tariffs on China, the US would be levying tariffs against the European Union, Canada, and Mexico. Many of our closest allies on steel and aluminum.
Obviously, these countries were outraged and pushed back.
It's been very tense for the last week, to the point that, for the first time, maybe making diplomatic history, we had a Twitter war between the US president and the French and Canadian presidents.
That's right I said Twitter War! Here's how it went down.
The American President may not mind being isolated, but neither do we mind signing a 6 country agreement if need be. Because these 6 countries represent values, they represent an economic market which has the weight of history behind it and which is now a true international force https://t.co/UA86fcjozs— Emmanuel Macron (@EmmanuelMacron) June 7, 2018
President Trump later tweeted...
Why isn’t the European Union and Canada informing the public that for years they have used massive Trade Tariffs and non-monetary Trade Barriers against the U.S. Totally unfair to our farmers, workers & companies. Take down your tariffs & barriers or we will more than match you!— Donald J. Trump (@realDonaldTrump) June 8, 2018
Please tell Prime Minister Trudeau and President Macron that they are charging the U.S. massive tariffs and create non-monetary barriers. The EU trade surplus with the U.S. is $151 Billion, and Canada keeps our farmers and others out. Look forward to seeing them tomorrow.— Donald J. Trump (@realDonaldTrump) June 7, 2018
Prime Minister Trudeau is being so indignant, bringing up the relationship that the U.S. and Canada had over the many years and all sorts of other things...but he doesn’t bring up the fact that they charge us up to 300% on dairy — hurting our Farmers, killing our Agriculture!— Donald J. Trump (@realDonaldTrump) June 7, 2018
Lets Talk About The Practical Impact Tariffs Can Have On You
We're not just talking about penalizing countries that have that are doing things that are dubious, like China. We're talking about significant changes in economic policy with virtually everyone one of the primary trade partners, which has created chaos.
If you've noticed this last week ended well economically. We were actually up one and a half to two percent in most major indexes. That's nice, but a lot of the volatility the last few weeks has not been because there's terrible things going on economically. We still have strong job numbers coming out. We're seeing decent earnings numbers coming out.
There's not a lot in the economy that says things are going badly.
What's causing the volatility we’ve seen lately has been caused by what's going on in Washington.
It's the total lack of clarity about what's coming next.
Are we going to have a trade war? What's it going to do to global markets? And then you add a historic meeting between President Trump and then the leader of North Korea into the mix. No sitting U.S. president has ever sat down and talked with a sitting leader of North Korea.
There's so much unknown going on, but here is what you can expect: more volatility.
No one knows what's going to happen, so you need to adjust your expectations. If you're still assuming going to keep going up, or if you're waiting for a terrible drop in the near future, I want you to adjust that and understand that volatility is the new normal.
Volatility is not necessarily a good or bad thing. But how do you prepare for volatility?
How to Protect Yourself From Market Volatility Hurting You
Intelligent diversification is the key. If you're trying to figure out how you can best handle a world that is unstable, where volatility is the norm, diversify.
If you’re not familiar with intelligent diversification, the best way to think about it is to go back to Sunday school.
I grew up in church and my dad was a pastor. I spent a lot of Sundays in Sunday school and the song Deep and Wide was drilled into me. “Deep and Wide. There’s a fountain flowing deep and wide.”
Intelligent diversification should be deep and wide.
Deep means within one type of stocks. So, I'm not going to go invest in Coke. I'm gonna invest in the S&P 500, which includes the 500 largest U.S. companies like Coke. Why? Because it gives me depth.
You know if one company has a bad year unexpectedly, you have 499 other U.S. companies that might not be having a bad year. It lowers your risk of one company messing up.
Wide means across different types of companies. I don't just want large U.S. companies. I also want small U.S. companies. I also want international companies and value options. I want a wide berth of diversified options, not just inside one area.
So many people I meet with have the bulk of their portfolios in one thing: large U.S. stocks. They have the S&P 500 and that's the bulk of their assets. They think they’re diversified, but their diversification is only deep, not wide.
When we're talking about global issues, we're talking about the impact of the trade war across the world. We want to make sure that your money isn’t centered in one area. If things really hit the U.S. hard, you could be in a lot of trouble.
Diversify wide so that no one place, one geography, one type of stock, can wreck you. You have exposure all over the market instead. That's what diversification should look like.
How Would Your Portfolio Respond to A Drop Tomorrow?
Are you invested both deep and wide? If you don't know how to do that, please take advantage of the free consultation we offer, where we can look at your portfolio and figure out if you are diversified correctly to handle the instability that we can expect to come in the next few months.
Volatility is just a reality in the world around us right now. But make sure you're diversified deep and wide and use us as a resource to keep your future safe.
If I got the Sunday school song stuck in your head now, you're welcome.