What would a trade war mean for my retirement investments?

Things can seem more confusing in uncertain times.

  • By Paul Brandus,
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  • Saving for Retirement
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Here at Retire Better HQ, we've gotten a fair amount of email on the return of stock market volatility. U.S. indexes peaked back in January and have gone on a roller-coaster ride since. Some of the recent volatility stems from President Donald Trump's announcement that he will hit China with trade tariffs, and Beijing's response that it may do the same to us. In other words, a trade war appears to be brewing.

This leads to a reader's question:

Q: I'm 62 and hoping to retire by age 67. I keep hearing how a trade war could hurt the U.S. economy, but what could it mean for an investment portfolio? And what, if anything, should I do?

"It's hard to say what stocks may do in a trade war," says Jeffrey Kleintop, chief global investment strategist and senior vice president for Charles Schwab. "The last trade war among major countries was 90 years ago. But it's probably safe to assume it wouldn't be good for stocks or bonds."

"However, rather than make any portfolio changes as if a trade war-driven bear market was imminent, a wiser strategy may be to simply rebalance your portfolio back to your long- term targets. In recent years, stocks have outperformed bonds by a wide margin. If you haven't rebalanced, the heightened volatility in your portfolio resulting from these trade spats can make you uncomfortable and feel as if you should make major changes or even sell everything."

"That means what you do next depends more on you, rather than the market or policy makers. If you've been underweight stocks and looking for a pullback, this is an opportunity. If you are overweight stocks, it isn't too late to sell even though stocks are off their highs and back to where they were late last year. Or, do nothing, and allow your long-term perspective and diversified asset allocation do what it is meant to do."

Kleintop's advice is on the mark. Stick to your long-term plan. Don't let emotions about current events derail it. Whatever your asset allocation — stocks, bonds, cash — make sure to rebalance on a regular basis. As usual, in uncertain times — and that's what we're in right now — it's important to keep a clear head — and talk things over with your adviser.

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