Trump Tariffs: how to protect and grow your retirement savings

By André Basson .US President Donald Trump can be a decisive topic, some like him and other loathe him. The fact of the matter is that he is the sitting US president, and my opinion does not change that. What I can however control is how I adjust my investments to this reality. Understanding Trump:He is confrontationalConventional presidents are very diplomatic, they talk a lot and often do less. Trump talks a lot but also does what he says he will do, and both very non-diplomatic. This has rattled markets, which does not like a change to the status quo. Therefore, expect increased volatility.He is transactionalIt is all about the deal the US gets. From the Russia / Ukraine conflict to the trade tariffs. One needs to ask what is in it for the US. Nothing is for free, and he will create pressure on order to negotiate from a stronger position. He looks at partnerships, not relationships. Therefore, expect that he will unfriend old allies if he feels the US does not get the best deal out the current situation. Again, more volatility. He is a businessman, not a soldierAlthough he will be confrontational, and negotiate with a strongman mentality, it does not look like he wants global war. This is important to remember, he will create pressure but only to the point that he arrives with a stronger position at the negotiating table. He is changing geopolitics in EuropeA big market mover is the way Trump (and his foreign minister) has confronted Europe. Trump expects Europe to take ownership of their own defence and not overly rely on the US. This is a rational request which most European nations has failed to do (not spending 2% of GDP on defence as per NATO agreement). The only problem is that they are unfriending old allies in the meantime with the way they communicate. The US/EU partnership has changed and will influence the way Europe operates going forwardHe is only here for one termAlthough it feels like he is dominating every news headline, one needs to remember that he already served one term and only has this one left. The Republicans will need to change the constitution for him to serve a third term, which is extremely unlikely. This means that Trump has a couple of years to bring about the changes he wants to – but he will not remain in power forever. The point is that the American democratic and legal system outlives the president, and if the system remains strong there is still a long-term future in the US (whether they have a good or bad president)How this impacts marketsEurope gains tractionIn reaction to Trump pressure and the Ukraine conflict, Germany has announced a fiscal bazooka of 800 billion Euros to spend on defence and infrastructure. As the biggest economy in the EU block, it will move the needle. This will increase sentiment from a very low base, and it is clear to see that there is some capital moving away from the US to Europe. European stocks are extremely cheap compared to US stocks, and can be a good place to invest if this trend continuesA weaker US dollarTrump wants a weaker US dollar to help US exporters particularly in the manufacturing industry, where he has a big voter base. But this will also help stocks listed in non-US jurisdictions. A weaker US dollar, measured against the Euro for example, will add to the growth of share prices listed in Europe (when measured in USD). Other areas such as Asia or UK also come into play Tariffs hurt everybodyGlobal trade is changing. Global tariffs will go both ways. There will probably be retaliation by other trade partners by increasing their duties as well. All this will be inflationary and will result in higher prices for consumers, leading to higher inflation and higher interest rates (hurting both consumers and governments). This means lower global GDP growth, possible recessions for certain countries and a higher interest rate environmentAdjusting your portfolioDiscretionary money: Get offshore exposure and currencyAs Trump creates global volatility, we have our own local problems which is evident in the current GNU troubles. We will always have both local risks and offshore risks. But the fact of the matter is that by only investing in the JSE (or having a big overweight) you are exposed to one set of risks that can financially ruin you. By adding global equity and exposure, you create a properly diversified portfolio, and in the meantime, this protects you from local risk as well. If you can physically externalise funds (converting rand to offshore currency) you protect yourself further against sovereign risk. Pension money: Use a living annuity instead of RA’s and pension funds.Once you are 55 or older you can convert Pension, Provident and Preservation funds, as well as RA’s (all governed by Regulation 28 of the Pension Funds Act) into living annuities. Here you can increase your offshore exposure and use other tools such as hedge funds with greater freedom, which can greatly increase your diversification and growth over time. Great American companies will still stay greatDominant companies, such as Microsoft for example, will be a dominant market player many years from now. The fact is that their share prices was expensive, they have taken a smack recently and if they fall further can be a buying opportunity at some point. The biggest and best companies in the world will remain in the US for some time and should not be ignored. Stay invested in the US for good reason but also include other areas that will benefit from shifting fault lines.Adjust your expectationsThe US stock market has historically given you around 8 to 9% in US (when measured over 80 years). Investors have short memory however and have gotten used recent gains of around 15%. This is unrealistically high, and the fact that that Trump is changing the economic world adjust amplifies this. The next 10 years might not look the same as the previous: just sticking to S&P 500 might not be the best solution: also include other areas such as mentioned and use nimble fund managers. Create safety for yourself and your emotionsBy having some insurance in your portfolio, you give yourself the ability to stay invested, which is the best way to generate wealth in the long term. Use one of the below methods to lower your risk: increase diversification: do not overly rely on one area such as the USinclude uncorrelated assets such as gold and offshore exposure: when markets drop, these assets increase in value (when measured in ZAR)use hedge funds: there are excellent local hedge funds with great track records and very stable returns. Bottom lineExpect extra market volatility during the Trump presidency and especially with the new tariffs. This is however not the end of the world. A rational and calm investor can stay invested and still make money during this time, although the ride will surely be bumpy.

Trump Tariffs: how to protect and grow your retirement savings

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