Tuesday, February 11, 2025

Tariff-Proof Your Portfolio in 3 Simple Steps

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EDITOR'S NOTE

You'll probably never guess this...

But one industry is in position to be BY FAR the biggest winner of Donald Trump's second term.

The answer is right here.

Elon Musk and Trump are making it a TOP priority in the next four years…

And even Democrats are backing it. The Senate recently voted 88-2 to invest massive sums here.

If you're an investor looking for the best Trump trade now, this is it.

- Nicole Labra, Senior Managing Editor

THE SHORTEST WAY TO A RICH LIFE

Tariff-Proof Your Portfolio in 3 Simple Steps

Marc Lichtenfeld, Chief Income Strategist, The Oxford Club

Marc Lichtenfeld

Everyone in the Americas has been buzzing about the Trump administration slapping tariffs on Mexico, Canada, and China.

The Wall Street Journal called President Trump's tariff policy "The Dumbest Trade War in History."

Given that allies Mexico and Canada were hit with 25% tariffs and China is receiving only a 10% tariff, the Journal may be understating it.

Recently, Trump delayed Mexico's and Canada's tariffs by one month after they agreed to try to curb the smuggling of fentanyl over their respective borders. Additionally, the president said the U.S. will attempt to curtail gun smuggling from the U.S. into Mexico. (The tariffs on China went into effect as planned.)

Hopefully, both Mexico and Canada are successful and the tariffs evaporate. But it would surprise no one if Trump moves the goalposts to try to get further concessions and he eventually implements the tariffs.

In a period when Americans' budgets are already stretched to the limit thanks to inflation, these tariffs would further raise the costs people face every day. (Remember, countries don't pay the tariffs. Importers do - and they pass those costs on to consumers.)

Almost half of all U.S. food imports come from Canada and Mexico, including nearly all of our avocados. Mexico is our largest foreign source of produce, and we get more meat and grain from Canada than from any other country. So expect higher prices at the supermarket if the tariffs are enacted.

Car prices would rise by an average of $3,000, and the price of the gas you put into them would rise as well. Though Canadian oil was slated to have a 10% tariff rather than the full 25%, there would still be a significant impact, as Canadian oil makes up 61% of all of the United States' imported oil.

Housing prices, which are already sky-high, would also increase. The National Association of Home Builders noted that more than 70% of all lumber and gypsum (a mineral used in drywall) comes from Canada and Mexico, respectively.

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In the Annual Forecast Issue of my newsletter, The Oxford Income Letter, I told subscribers to expect higher inflation in 2025. I expect inflation to rise to at least 4% and the yield on the 10-year Treasury to reach 5.6%. That's going to make life more expensive and could put pressure on stocks.

I don't see that happening immediately, however. I suspect it will be a "second half of the year" event.

In the meantime, there are a few things you can do to prepare for rising prices.

1. Own dividend growth stocks.

The reason I am such a proponent of dividend growth stocks is so investors can be prepared for situations exactly like this. Dividend growth stocks are one of the very few investments that can help you maintain or even increase your buying power during inflationary periods.

If you collected $500 in dividends last year and they're growing at 10% per year, you'll receive $550 in dividends this year. So even if inflation climbs above 5%, you'll still have more buying power than you did last year.

Additionally, dividend growth stocks tend to be more conservative and safer than the broader market. They outperform in bear markets, and if you buy them after a decline in the market, you can obtain some very strong yields.

2. Keep some cash on the sidelines.

Because rates have climbed over the past few years, you can earn a decent interest rate on your cash in money market accounts or short-term CDs. I recommend shopping around to make sure you get the highest rate.

Keeping some money in cash will also allow you to pick up more dividend growth stocks when you're ready.

3. Own commodities.

Owning commodities - or stocks/ETFs that are based on commodities - should also protect you from higher prices. Food- and metals-related stocks and ETFs are particularly attractive when prices are about to move higher.

Washington's "Wisdom"

The sad thing about all of this is that some of President Trump's other policies, like deregulation and lower taxes, are pro-growth. He has an opportunity to do some really good things for the American economy. However, this tariff policy could derail all of that.

It appears that no matter who is in office, boneheaded decisions will continue to come out of Washington, as they have for decades. As investors, we need to take steps to protect ourselves from stupidity in whatever form it takes.

Good investing,

Marc

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