Firecracker, firecracker, boom boom boom!
By EVAN GUIDO
Parrish resident; Financial Advisor at Baird Wealth Management
Fireworks displays are incredible! Ironically, China is by far the leading shipper in the world, owning 85.6 percent of the world’s market share. Fireworks are not caught in the tariff war crosshairs as of yet. This is great news because we Americans love to blow stuff up, so we would need to identify a socially acceptable alternative first. Nothing says good use of tax revenues like shooting it in the air and burning it up.
Random fun facts: The United States imported $279,966,624 worth of fireworks last year in total. Missouri residents led the way with an annual spend of $42.3 million, followed by Nebraska & Kansas. (Source CNBC)
While the market had explosive returns last year, I know many are on the edge of our seats wondering if the best days are behind us. It is hard not to feel perpetually nervous in today’s fast-moving media world. All it takes these days is a provocative 140-character Tweet to rain down headline after headline of anxiety-inducing articles about what could happen next to the economy, stock market and the world at large. Reminds me of the stories I read to my children — Chicken Little, The Boy Who Cried Wolf and the Three Little Pigs. More animal references to follow.
Most recently, all eyes have been across the Pacific, the Atlantic, and north and south of the U.S. border as well. The Trump administration has waged a trade war on numerous U.S. allies to protect domestic manufacturers and reduce America’s trade deficit. Trump imposed steel and aluminum tariffs on Canada, Mexico and the European Union and tariffs on $34 billion of Chinese goods. Not surprisingly, these nations are imposing their own retaliatory tariffs on American imports. Should trade tensions and protectionism measures escalate, these actions could bring recession and volatility to an otherwise healthy global economy. For example, economists estimate that as much as half a percent point could be shaved off China’s economic growth rate if Trump makes good on his threat to impose tariffs on an additional $200 billion worth of Chinese goods.
I don’t know how the current trade wars will end. No one does. I would guess that cooler heads will ultimately prevail to avoid any actions that could trigger a global recession.
However, the world is a very dynamic place, and trade war escalations can cause a number of unintended consequences. For example, The European Union placed a tariff on American chickens in the 1960s to protect its chicken farms from cheap imports. (See what I did there? A factual poultry reference tying back to the chicken little anecdote. I digress.) So, anyway — in response, America placed tariffs on brandy, trucks and other European goods. The chicken tariff and others eventually went away, but the automobile ones stuck and remain to this day (five decades later). This protective tariff is credited with the rise of the American truck industry. Simply put, you never know what long-term effects could result from the latest trade wars. I personally believe trade issues will affect certain companies and sectors more specifically than the entire U.S. economy. These types of events are fairly rare over history and certainly warrant a second opinion of your investment lineup.
There is a lot of dust yet to settle, but that is no reason to panic. Instead, make sure you remain comfortable with how your assets are allocated between stocks, bonds and cash. More specifically remind yourself of the purpose of your portfolio: Income, growth, inheritance for future generations, or simply preservation of capital. Adjust your sectors and companies accordingly to make sure your money is committed to those longer-term goals. Just think … if one of those little pigs had taken more time and care than the others … (ie: portfolio construction).
Any given day, the value of your stock portfolio could rise or fall (sometimes significantly). But the odds are in your favor if you can get yourself to stay the course over time.
The Wall Street Journal recently wrote, “Since 1928, the stock market has risen on 54 percent of days, 58 percent of months, and 73 percent of years. Over that time, a $10,000 investment in U.S. stocks in 1928 would have grown to $40 million.” It’s hard to lose when you buy stock in a diversified group of high quality American businesses and hold for as long as you can. The odds are clearly in your favor.
The fastest and easiest way to hurt your portfolio is to think too much and let the news headlines (or your vocal, yet less successful friend) drive your investment decisions. The Wall Street Journal noted that stocks and mutual funds, over the long run, have outperformed their shareholders by an average of about 1.3 to 1.6 percent annually. Irrational trading behaviors have clearly eroded our returns over the years.
Until next time…
Join me at a complimentary presentation: Donating Tax Efficiently: Donor Advised Funds and QCD’s on Wednesday, July 25, at noon at the Bradenton Yacht Club at 4307 Snead Island Road, Palmetto. RSVP to 941-906-2829.
Evan Guido heads a wealth management team in Sarasota, FL focused on retirement planning. Guido is a Financial Advisor with Robert W. Baird & Co. Robert W. Baird & Co. does not provide tax and legal advice. The content of this article was produced and provided by Broadridge Investor Communication Solutions, Inc. Copyright 2018. Call him at 941-906-2829 or visit evanguidogroup.com.