One minute it’s 10%, the next 20%. Next week President Trump might be threatening to apply 70% tariffs on a country that’s not playing ball.
Uncertainty about how the American President applies tariffs creates volatility and financial advisers have to think fast, act fast and reassure their clients even faster.
We know from the financial advisers we talk to they have a number of strategies that help them manage the impact of US tariffs.
What are tariffs and what do they do?
Tariffs are taxes on imported goods. The additional costs paid by importers are often passed on to businesses and consumers, influencing prices, demand and profitability.
Tariffs can:
- Impact the profitability of companies and sectors that rely heavily on selling goods and services around the world
- Raise the cost of imported goods and contribute to higher inflation which affects interest rates and ultimately equity valuations and bond markets
- Create uncertainty that increases short-term market volatility and delays corporate investment decisions
What our financial advisers tell us
We talk to clients who are financial advisers daily and we know from those conversations that different advisers have different attitudes and tactics towards tariffs.
Some of you take bold action, tweaking exposure to US markets and increasing allocation to so called safe havens like gold and silver.
The overwhelming feedback we get though is that the pain inflicted by tariffs is usually short-term and good planning can get you through.
Short-term pain
It seems the US President uses tariffs as a short-term negotiating tool, and as such, the impact is short-term.
Some tariffs, like those applied to China and the general 10% tariff for many countries that trade with America, seem to be here to stay. But they’re really the same tariffs Donald Trump applied during his first term, re-applied for his second term.
Threats of higher tariffs, like those we heard during the Greenland announcements are removed as quickly as they are applied.
Managing your client’s investments
When markets fall sharply, the instinctive reaction can be to sell to mitigate losses but that can be counter-productive, especially when we know the volatility is not going to last.
Some financial advisers will try to pre-empt new tariffs to earn a quick buck, but that’s risky business.
The most sound advice financial advisers can give to those clients who don’t need instant access to cash is to stay in the market and ride out the storm.
Importance of planning
The financial advisers we work with tell us that planning is the best strategy to manage assets.
If their clients need access to cash in the near future, careful planning is crucial.
Advisers can help plan for a sale of investments by slowly moving money to cash and/or diversification of investments away from equities.
Planning ahead is where advisers add the most value.
Keep talking to your clients
Maintaining a good relationship with your clients, talking to them and working with them is critical for managing the volatility that US tariffs bring.
Yes, tariffs influence earnings, inflation and market sentiment and introduce uncertainty. But a financial adviser who carefully explains the importance of planning while focussing on long-term investment performance, will give their clients the peace of mind they need.
