For the last several years, most individual company 401(k) retirement plan participants have kept their accounts on cruise control. I don’t think that is going to remain the best investment management strategy over the next few weeks.
On Thursday, March 1, President Trump announced a new plan to institute a 25% tariff on steel imports and a 10% tariff on aluminum. The reaction to this news so far in the U.S. stock markets has not been good.
President Trump’s announcement has the potential be even more significant over the next few weeks. Why? Because of the possibility that it could spark a trade war.
Let’s go back to your high school economics class. A tariff is essentially a tax on imported goods and services. President Trump wants to make it more expensive to import steel and aluminum from other countries. In theory, the new tariffs would protect American metals manufacturers.
When one country raises tariffs on a certain kind of product, other countries that depend on exporting that product won’t take to it kindly. As a result, those countries might retaliate by increasing tariffs on their imports, thereby harming the first country. Before you know it, tariffs become weaponized and a trade war breaks out.
Trade wars are risky things, because they can quickly jump from country to country and industry to industry.
We live in a global, interconnected world. Toss a stone into the water off one shore and the ripples can be seen near another. In this case, the proposed higher tariffs have already caused some very large U.S. stock market ripples.
Even the possibility of a world-wide trade war can have a substantial impact on the U.S. economy and the stock markets.
Back in February, the markets took a hit due to the threat of inflation and rising interest rates – and then recovered. Don’t guess at how the markets are going to react to the news of trade tariffs.
Add tariffs to the list of factors that are now working against your buy-and-hold company 401(k) investment management strategy. The increased U.S. stock market volatility requires a stop-loss mechanism to limit losses.
We now live in a highly volatile, globally dependent world marketplace. It’s time that you begin to manage your company 401(k) retirement plan assets accordingly. At the moment, you need to recalculate the stock market risk levels in your company 401(k) retirement plan account.
Ric Lager
Lager & Company, Inc.
