Your IRA or 401(k) Could be Casualty of Tariff-Induced Trade War
Posted By | March 9, 2018
When President Trump initially – and rather surprisingly – announced tariffs on steel and aluminum imports, the already-shaky stock market was further rattled by the news. Tariffs beckon trade wars, and trade wars are bad for investors.
Aside from an all-out conflict with our trading partners (the effects of which could be catastrophic), tariffs can lead to higher prices for the many U.S. industries that rely on imported steel and aluminum. These higher prices can, in turn, lead to inflation – just one more concern for an economic environment already anticipating as many as four interest rate hikes this year.
The announcement was more than just economic saber-rattling. The tariff proclamations have been signed, although these particular measures exempt Canada and Mexico for now, one highly-regarded money manager sees real disaster ahead for investors as a consequence of U.S. leaders aggressively pursuing protectionist policies.
Ben Inker, head of asset allocation for Grantham Mayo Van Otterloo & Co. (GMO), which manages about $70 billion, issued an update to clients in which he declared that “balanced portfolios” could suffer losses of as much as 40 percent as an ultimate result of the tariffs:
“While there are scenarios that would be worse for financial markets – the proverbial asteroid on a collision path with Earth comes to mind – a trade war has the potential to be very bad for both the global economy and investor portfolios. As I wrote about last December, a significant inflation problem might well be the worst thing that could happen to a balanced portfolio, leading to losses on the order of 40%. A global trade war would be exactly the kind of economic event that could foreseeably lead to losses of that magnitude.”
Key to Inflation Survival is Proactively Protecting Your IRA/401(k)
The rapid enactment of these tariffs serves as another reminder that investors must be proactive in their portfolio planning to avert the growing number of landmines ready to blow up their portfolios – including a possible trade war.
Ben Inker is certainly ready. He closed his address to clients by saying that GMO would not be adjusting its allocations as a result of the tariffs. Why? The firm has already lowered weightings in riskier assets (stocks, in this case), and increased exposure to those offering inflation protection. In other words, the folks at GMO have been expecting trouble for some time now.
Hopefully, you’ve been expecting trouble, as well. If you’ve yet to do anything about it, then it’s time to start moving. Fortunately, physical gold and silver provide a real option for investors in this new economic environment. Not only can gold and silver help protect your portfolio from the losses that will likely plague those who remain fully committed to more traditional assets, but they have the demonstrated potential to serve as sources of significant capital appreciation during periods of economic upheaval.
Alarms are only helpful if you heed the warnings they are meant to convey. The implementation of tariffs in an environment of rising interest rates, as serious as that development could be if it precipitates a trade war, is just the latest of what have been a number of alarms warning equities investors real trouble could be coming. If you haven’t reacted yet, there is still time. Don’t be caught without protection for YOUR portfolio.
Your Future and Your Legacy!
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