The tariff announcement this week by President Trump shocked investors and global markets. The proposed tariff rates were much higher and broader than the most severe predictions. The new tariffs are an average of 29% and if enacted fully, U.S. importers would have to pay about $1T in tariffs per year, about $7300 per household. But more than likely that would not occur, as some goods would just not be imported or bought which could also create shortages or price hikes on remaining goods. The 54% tariff on imports from China may have the biggest impact since a broad array of goods, from shoes and clothes to cell phones, will be impacted. At the time of this writing on Thursday morning, the U.S. markets were down over 4% and global markets were down as well though not by as much. Despite the hit to the markets, some experts believe the market reaction should have been bigger, meaning investors are not convinced the full tariff amounts will stay in place. Axios
Political Ramifications: You would be hard-pressed to find a reputable economist or market analyst stating tariffs are an overall net positive for the U.S. economy and markets. President Trump’s strong suit was considered to be the economy. If that assumption is damaged by the tariffs, it could lead to the House of Representatives flipping to the Democrats in less than two years. That’s a long way off, but politicians are always looking to the next election, and the response from House Republican Representatives will be interesting. Greg Valliere
How Investors Can Have a Sense of Control in an Out-of-Control World: The year’s relentless news cycle has left investors reeling. With the economy already slowing, new tariffs and policy changes have only added to the uncertainty. So, how can investors regain a sense of control? Here are a few key steps you can take:
- Diversify Wisely: Build a balanced portfolio that incorporates stocks and bonds across various sectors and global markets. International diversification can help cushion against domestic policy shifts and market volatility.
- Maintain a Strong Cash Reserve: A well-funded emergency fund, enough to cover several monthly expenses, can provide financial stability and peace of mind. It also offers the flexibility to buy quality investments at a discount during market downturns.
- Stick to Your Long-Term Plan: Control what you can: asset allocation, risk management, saving, and spending. Stay disciplined and focused on your financial goals, rather than reacting emotionally to short-term market noise.
- Rebalance Periodically: We have spoken in the past of the merits of rebalancing when your asset allocation moves significantly away from the intended target. Buying stocks when they are 5% or 10% below their target, can reap rewards down the line.
- Beware of Confirmation Bias: Confirmation bias is the tendency to seek out information that reinforces one's existing beliefs while ignoring any contradictory evidence. If you are constantly reading negative news about the markets and “doom scrolling,” you may end up feeling worse. Strive for a balanced perspective.
Private Sector Employment Increases: The private sector increased employment by 155,000 jobs in March, beating expectations of an increase of 120,000 jobs. Wages for those staying in their positions rose by 4.6%. The overall numbers signal a solid labor market and are in opposition to the recent very negative sentiment of business and consumer surveys. Sentiment is how people feel, but it may not correspond to their actions. In this case, the employment report is good news for the economy. CNBC
Financial Planning/Investment Strategy Corner:
Cash Balance Pension Plans: High earners, such as lawyers, doctors, and accountants, are increasingly using cash balance plans to save for retirement. These plans have surged in popularity and now hold over $1 trillion in wealth. Cash balance plans are a type of pension plan that allows participants to save a lump sum amount, similar to a 401(k). Unlike traditional pensions that pay a monthly income, cash balance plans enable individuals to accumulate significant retirement savings, often reaching up to $3.5 million. The plan assets are invested but the return target is usually modest, typically 4-5%. The biggest advantage of cash balance plans is the ability for much higher contribution limits compared to other retirement plans, such as 401(k)s. Contributions to these plans are tax-deferred, which can greatly reduce current taxes but withdrawals are taxed as income upon retirement. This can create a tax challenge later in retirement when Required Minimum Distributions may force unneeded large distributions later in life that incur high taxes. Therefore, anyone considering a cash balance plan should consider future strategies, such as Roth IRA conversions to help mitigate future tax hits. Overall, cash balance plans offer affluent professionals a powerful tool for building substantial retirement savings while complementing their existing 401(k) plans. WSJ - Cash Balance Plans: The Retirement-Savings Weapon Giving High Earners a Boost Over 401(k)s
Quick Hits:
- When should you eat, before, after, or even while exercising? AP News
- All billionaires are hated, right? Well, not Warren Buffet: How Popular Are America's Richest Billionaires?
- Here are thirteen affordable places to visit in Europe: Conde Nast Traveler
- Warm weather is around the corner, time to plan your spring garden: 2025 Garden Trends
- For those looking for a new TV series, here’s a list for the best of April (but I am enjoying Slow Horses immensely right now, though it came out a couple of years ago!): Forbes
Batter Up! The Major League Baseball season has just started, and a new sensation has hit the diamond – the torpedo bat. Using the new bat, the New York Yankees (booooo!) slugged 15 homers in the first three games of the season, and everyone is talking about it. The torpedo bat was designed by an MIT scientist who redistributed the wood of the bat toward the center and tapered the end of the bat. The weight of the bat is closer to the hands, making it easier to swing. Maybe some of us will see some torpedo bats swung at a Sea Dogs’ game this summer (hint!). WSJ Scientific American
Quote: “He who has a why to live for can bear almost any how.” Friedrich Nietzsche
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