3 Ways To Prepare Your Stock Portfolio for Tariffs and Inflation Over the Next 4 Years
Written by
Vance Cariaga
Edited by
Jenna Klaverweiden
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President Donald Trump’s Wall Street honeymoon didn’t last very long. The stock markets hit new highs following his November election, but lately they’ve come crashing back down to Earth as investors fret over the financial impact of tariffs.
The Dow closed down more than 700 points on Friday, March 28, CNN reported. And as of April 3, the S&P 500 is down over 3% for the year.
Some of the recent volatility is the result of proposals to impose steep tariffs on imported goods. Many experts fear this will lead to higher inflation, which in turn could lead to an economic slowdown and a drag on corporate profits.
“It’s natural for people to expect higher prices because we haven’t seen a trade war like this since [President William] McKinley,” Art Hogan, chief market strategist at B. Riley Wealth Management, told CNN.
Trump has not exactly calmed nerves by suggesting that the stock markets might have to go through some near-term pain to achieve his economic goals — and that consumers might have to brace for higher prices.
For investors, it’s important to prepare. Here are three ways to prepare your stock portfolio for tariffs and inflation.
Also see Warren Buffett’s warning about the impact of Trump’s tariffs.
Review Your Holdings and Find Potential Weak Spots
Whether you pick stocks yourself or enlist the help of a professional, it’s important to analyze which companies and sectors are most at risk. Luke Pryor, U.S. strategic equities co-portfolio manager at Bernstein Private Wealth Management, said in a recent chat on the company website that his company will take a two-pronged approach.
- Quantitative risk management: This involves analyzing a portfolio’s exposure to tariffs by using tools that can “predict performance under different tariff scenarios,” Pryor said.
- Company engagement: Take time to explore how specific companies could be impacted by tariffs, “whether negatively, neutrally or positively,” he explained.
Focus On Big Companies With Strong Fundamentals
In a March 5 report, BlackRock noted that in an environment of “tariff-driven volatility,” it prefers large cap stocks with strong balance sheets over small caps.
It explained that the iShares U.S. Equity Factor Rotation Active ETF, which is invested mostly in U.S. large caps, is one of its favorite ways to invest in large caps. This exchange-traded fund is actively managed, and it can adjust dynamically as markets change.
Keep Some Money in Bonds — but Choose the Right Kind
The current inflation rate is 2.8%. As a result of lower inflation, per Morningstar, the Federal Reserve has pivoted away from rate cuts for the time being.
CliftonLarsonAllen, a Minnesota-based wealth management firm, suggested in a recent blog that interest rates could stay higher for longer. To prepare for that scenario, it added high-yield municipal bonds to its portfolio.
Editor’s note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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