Finance Headwinds: the cost of everything Despite the efforts of some U.S. politicians to convince us otherwise, tariffs are a kind of tax on the goods and services which we buy from overseas. That tax is paid first by the companies that import these goods and services, who then largely pass that cost on to us. In practical terms, this means that unless all of this tariff trouble is resolved relatively quickly, we should all expect the cost of everything from produce to home appliances to automobiles to luxury watches to increase in the months to come. With the start date for international tariffs changing week by week, and the final levy on many products still very much in the air, it’s tough to say exactly how much prices will rise, for how long and on what. But if you’re looking to buy a big-ticket item sometime in the next year or so, it might make sense to think about pulling your purchase date forward before inflation truly starts to stick. Headwinds: banks and financial services Canadian banks and financial services companies have long been the foundation of many snowbird portfolios: they’re highly profitable, pay generous dividends and enjoy solid balance sheets. At the same time, their profits are inherently tied to the health of the overall economy – and that’s a significant challenge which they’ll be facing over the next several months. If the proposed tariffs stay in place, we’ll likely be seeing higher unemployment, a muted real estate market and a lot of economic uncertainty in Canada. That will make it relatively tough for banks to grow their portfolio of profit-making loans. The same is almost certainly true for U.S. and international banks, as well as for other financial companies such as credit cards, insurance companies and asset managers: it’s not that they’ll be hit by tariffs directly, but the effects of a lengthy recession will present a significant challenge for months to come. For individuals with a suitable long-term investment horizon, this may be a good time to increase their exposure to the financial sector. But the key word is “long-term”; over the next several months, the winds will likely be blowing in the face of the financial sector, and quite strongly. Headwinds: residential real estate It’s not surprising that, in the face of the tariff uncertainty and the threats of recession, most residential real estate markets in Canada are reporting fewer sales and increased DOM (days on market) for most listings. Will this trend reverse if tariffs are rescinded or a deal is negotiated? Maybe. But it’s just as likely that the tariff trouble will push Canada into a recession, and that the market for residential real estate will become even more challenged than it is now. If you happen to be looking for a new home or rental property, this might be very good news: you could see reduced prices in the months to come. The same goes for investors looking to put their money to work in publicly listed real estate investment trusts. But for current homeowners, the threat of recession is likely to make for a very difficult real estate market for several months to come, with a distinct possibility of declines in home values in select markets. Tailwinds: the diversified portfolio Over the past several weeks, most major world markets have seen a strong, sharp correction downward. However, some markets have fared better than others: U.S. and Asian markets have been hit hard, European markets have done somewhat better and Canada is somewhere in between. The same can be said for different asset classes: while stocks have suffered, bonds have held their own, real estate has been a mixed bag and gold has performed well. There’s a clear, simple lesson here about the value of portfolio diversification: while there’s no geographic market or asset class that offers complete immunity from volatility, those who chose to spread their portfolios across a multitude of markets and assets have probably done much better than those who went “all in” on technology stocks, for example, or in the U.S. market. Going forward, that’s likely to remain the case. Tailwinds: health care Health care is another industry that has historically been considered a safe harbour in financial storms – people are generally willing to spend money on their own health no matter how sick the economy may be. The current economic turmoil looks to be no different, as major drug companies have so far been exempted from the worst of the tariffs, while other segments of the health-care industry (health-related real estate, biotech, etc.) note little or no impact on their business. The big question, of course, is whether this will continue. Tariffs on drugs could be introduced at any time (indeed, recent rumblings suggest that this may happen within the next few months), and medical device and equipment makers may be vulnerable to tariffs on critical minerals and electronic components coming from overseas. But, for now, investors seeking a place to wait out the storm might want to take a look at this sector. Tailwinds: defence-industry stocks The world seems as if it’s going to be a more-dangerous, less-secure place over the next several years. And, while rising geopolitical tensions are generally bad news for most businesses, they are very good news for any company involved in the development of armaments, airplanes, cybersecurity or related industries. America’s increasing calls for allies to increase defence spending adds even further momentum to the trend. Many countries in Europe seem to have already gotten the message: over the past several months, defence firms’ stocks in Europe have risen sharply on news of increased spending on defence by Germany and other nations. If you’re looking for one area that should see very strong growth in the next several years, it’s the defence industry. A broadbased ETF might be a good choice here, as nearly every industry sub-sector is expected to see increased demand over time. 28 | www.snowbirds.org
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