Navigating Uncertainty: Strategies to Shield Investments from Trump-Era Risks
It’s been a roller-coaster of a summer for Canadian investors whose stocks are affected by U.S. President Donald Trump’s tariff announcements. On July 31, Trump hiked tariffs on goods that fall outside of the Canada-U.S.-Mexico Agreement (CUSMA) to 35 per cent from 25 per cent.
The tariff and market uncertainty is affecting how Canadians manage their money: a May survey from Nanos found that 59 per cent have made changes to their financial situation as a result of U.S. tariffs, with 39 per cent cutting back on spending.
Markets don’t like uncertainty, says Jason Heath, certified financial planner and managing director of Objective Financial Partners. “They prefer stability and tariffs are the exact opposite.”
Here’s what experts say Canadian investors should consider when it comes to maintaining a healthy portfolio through the Trump-era ups and downs.
Don’t make knee-jerk reactions
There are certain sectors that will be hit harder by tariffs than others. Jeff Kaminker, founder, president and CEO of wealth management firm Frontwater Capital, points out that steel and aluminum are subject to “supersized tariffs” of 50 per cent. The automotive industry is also affected, along with anything that involves manufacturing. He also points out that CN and CP Rail are likely to be impacted by decreased shipping volumes thanks to tariffs.
Utilities and pipelines are two sectors in Canada that are somewhat immune to tariffs, Kaminker says. “I think those will continue to do fine.”
Kaminker says he’s not too worried about investments for the long-term horizon. “Investors always have to be worried about engaging in knee-jerk reactions,” he says. He points out that the market went down when tariffs took effect in March and, in the span of two months, the market shot up 25 per cent. At the end of June, U.S. stocks closed at an all-time high. “Just three months ago, a lot of Canadians were worried about Trump invading Canada and the best strategy was just stay the course,” Kaminker says. “That’s what we continue to advise our clients.”
Invest in international companies
Global diversification is key when it comes to maintaining a successful portfolio, regardless of tariffs.
Many Canadians are guilty of having an overly Canadian portfolio and may be overexposed to a very small segment of the global stock market, Heath says. There’s a risk of holding too few stocks, and there’s a risk of investing in too few countries. “If ever there were a case for investing outside of North America in the global stock market, this is a great example of why you can’t just invest in Canada.”
Depending on the market metric that you look at, global stocks represent about 40 per cent of the worldwide stock market valuation, Heath says. “Having a healthy allocation to global stocks can provide good diversification,” he adds, pointing to the Canada Pension Plan Investment Board as an example. “They’re invested significantly outside of North America to fund our retirement pension. I think that’s a strong vote in favour of doing it.”
Matthew J. Ardrey, senior financial planner and portfolio manager at TriDelta Private Wealth, agrees that many people have very North American-centric portfolios, with all of their stocks in Canada and the U.S. If you invest in a company that produces and sells everything in Europe, he says, “tariffs mean nothing to them because they have nothing to do with sending things over to the United States.”
It’s also important for Canadian investors to rebalance their portfolios over time. Heath points out that U.S. stocks have done well over the last 10 years and have almost doubled the annualized return of Canadian stocks. “If somebody has not rebalanced and reduced their U.S. stock exposure, they may be overexposed to U.S. stocks as well,” he says.
Ideally when building a portfolio, Heath says you want to own Canadian stocks, European stocks, U.S. stocks, bonds, cash — a mix of everything. The more diversified you are, the less volatility you’ll experience, and the more you reduce the risk of being in the wrong place at the wrong time. “There are risks that Canada is in for a tough road and there are risks that the U.S. may be making the wrong choice,” Heath says. “Global stocks just give you more exposure to different countries, different currencies and different economies that may benefit even if North America lags.”
If someone wants to go out of their way to make changes to their stock portfolio to protect against tariff risks, Heath says they want to look for investments that are more focused on domestic revenues that are not impacted by the U.S. — utility companies, telecommunications companies and, to some extent, Canadian banks. “I’m not saying that because I think that’s what people should do, but if somebody really wants to change their Canadian stocks to have sectors that are less at risk, that’s probably the approach you’d want to take.”
Re-evaluate your risk tolerance
If you’re going to need access to all the money from your investments in less than five years (for a house or children’s education, for example), Heath says you should consider reducing your exposure to stocks. “Stocks go up about two-thirds of the time, which is pretty good, but that does mean they go down about a third of the time over a one-year period. Once you get under five years, that’s the danger zone.”
If you’re lying awake at night worried about the effects of tariffs on your investments, Heath says, that’s a sure sign that you’re taking on too much risk and now is a good time to re-evaluate how much exposure you have to stocks in your portfolio. “It’s not bad time reduce your stock exposure by 10 per cent, for example, because markets are more or less at all-time highs. The one-year return numbers are double digits,” Heath says. Ideally, you should have the same stock exposure whether markets are up or down.
Sit tight
When asked whether tariffs are causing a long-term market shift or short-term market noise, Heath says he believes it’s the latter. “In the long run, it’s probably not going to matter,” he says, adding that the best thing for a long-term investor to do is have a disciplined approach and a diversified global portfolio.
Ardrey notes that since the COVID-19 pandemic, there’s been some sort of crisis every year. “The worst thing that someone could have done in April when the markets took their dip would have been to sell out, because we saw how quickly they rebounded.”
Kaminker says times like this are when a good investment adviser really earns their pay. “I’d say 75 per cent of the investment adviser’s role is to manage the behavioural finance of a client’s portfolio,” he says. “Every client will say, ‘yeah, buy low, sell high, got it, I understand.’ But in the moment, when the market is down 20 per cent because something unprecedented happened, people do get nervous and emotional.” A professional investment adviser, he says, can help instil discipline.
Ultimately, Kaminker says to take Trump news with a grain of salt. “He likes being a jerk, he likes to poke the bear, but you have to see it as just a negotiation tactic to get people heated.”
This article was first reported by The Star
