Part of me needs to admit that today’s title was an attention grabber. The deeper questions are:
- Are investors ready for volatility?
- Are investor expectations ready for a test of high stock valuations?
- As always, do investors have enough cash for spending priorities and wishes?
- Are investors ready to take advantage of any coming volatility with savings strategies (think: being able to continue regular contributions to savings & investments, 401k plans and IRA accounts)?
Tariffs have been headlined since the start of the US Presidential election cycle and have recently become a reality. Markets have reacted negatively at times over the past three months due to several news events including the reality of tariffs but also including caution around the valuation of certain stocks (NVDA, TSLA) and sectors (healthcare).
Does this mean that an investor needs to change her or his investment focus? No, not entirely (if at all).
The most important considerations with investing are, primarily:
- liquidity
- tolerance for risk
- diversification
- attention to tax implications.
Additional, still important factors around investing are cost, transparency, awareness of inflation, interest rates, asset allocation and overall strategy. There are even further factors (including currency fluctuations, amounts of debt in an economic system) but then the situation gets beyond the most important and basic factors.
Note that tariffs are not on this list of primary concerns for investors. (Of course there will always be differing opinions.) For foundational purposes of long-term wealth accumulation and financial planning, tariffs are not an investing factor as much as an economic factor.
Even recessions – which are inevitable, along with periods of economic prosperity – are not able to be timed precisely enough to dictate an investment strategy.
Today’s news focus on tariffs and the potential for recession are not new. Rather, these economic factors have always been part of a solid, globally diversified investment strategy. There are additional ways to diversify portfolios including private areas of the markets but, as part of that conversation, liquidity is huge and not talked about nearly enough. Stay focused on what is most important (see bullet points above for what that means).
This material has been prepared for informational purposes only and is not intended to provide, and should not be relied upon for, tax, legal or accounting advice.