My blog inbox and my professional inbox exploded last week with tariff questions. <\/p>\n
At first, I thought, \u201cEveryone\u2019s already talking about it\u2026do I really<\/strong> need to add my voice to the fray?\u201d<\/em><\/p>\n But the questions kept coming. And after two terrible red days on Thursday April 3 and Friday April 4, the futures market looks glum heading into Monday April 7. So, like it or not, here are my two cents. <\/p>\n I wrote this Q&A. My goal is to make it rapid-fire and easy to consume. If you\u2019re sick of tariff talk, skip it. If you know everything already, skip it. But if you want a simple-yet-thorough breakdown, let\u2019s chat for four minutes. Here we go\u2026<\/p>\n It\u2019s a tax that a government (the USA, in this case) charges on a foreign import. The tax is typically a percentage of the price that the domestic buyer pays to the foreign seller. <\/p>\n The glass-half-full rationale is mainly:<\/p>\n But, more likely than not, the self-inflicted pain of tariffs far outweighs the benefits. <\/p>\n Just about everyone. <\/p>\n On their face, we already said the importer pays the tariff to the government. But the importer doesn\u2019t want to stomach that entire bill itself. The importer will pass some of those costs on to both the foreign exporter and<\/em> the eventual buyer. <\/p>\n We all pay. <\/p>\n Regardless of economic or political loyalty, most economists agree that tariffs are more bad than good. <\/p>\n They cause inflation and slow down economies. This duo of effects is called \u201cstagflation,\u201d and it\u2019s bad. <\/p>\n Market prices are all about expectations<\/strong>. What do we think will happen, and what would the appropriate stock price be in that case?<\/em><\/p>\n President Trump\u2019s tariff announcement, and the subsequent 14% (and counting) selloff, made two things clear: <\/p>\n The announcement was significantly worse than expectations. Hence, a rapid, significant price correction. <\/p>\n US stocks are down (10%). <\/p>\n International stocks are down (6%). <\/p>\n Bonds are flat-ish. (up about 1%)<\/p>\n Real estate is down (8%) <\/p>\n Gold is down (4%). Other commodities down too (6%). <\/p>\n How can everything<\/em> be down?! Surely someone<\/em> in the economy wins? <\/p>\n The answer: tariffs are a tax that everyone<\/em> pays for, in some form or another. The extra costs are felt in all corners of the economy. <\/p>\n The only \u201cwinner\u201d in terms of dollars and cents would be the government(s) who collect the tariff. <\/p>\n And a government collecting more revenue doesn\u2019t stimulate the economy. <\/p>\n The famous saying is, \u201cThe four most dangerous words in investing are, \u2018This time is different.\u2019<\/strong>\u201c<\/em><\/p>\n And in some ways, this time is NOT different. I\u2019ve written many posts about market history, including the frequency of choppy markets. <\/p>\n But in one major way, yes, it feels different. I plan to write a separate article to address this idea more completely. <\/em><\/p>\n This feels different because it\u2019s self-inflicted. <\/p>\n Sports fans, for example, expect that their team could<\/em> lose. It\u2019s the nature of the game. But we don\u2019t<\/em> expect our own player to turn around, run the wrong way down the court, and slam dunk on his own basket<\/em> to lose us the game. That\u2019s not<\/em> the kind of loss we expect. <\/p>\n This tariff tantrum sell-off feels like that. Or as other commentators have written, <\/p>\n Everyone agreed how bad it would be if we pressed that button, shot that hostage, dunked on our own basket. And yet, here we are. That feels different. <\/p>\n So far in history? Yes. <\/p>\n Eventually<\/em>, yes. <\/p>\n Still, that\u2019s not a reason to \u201cfeel good\u201d about current market conditions. <\/p>\n And, as I\u2019ve written about before, it\u2019s pretzel logic to assume that markets will always come back.<\/a> <\/p>\n Market values are a representation of the average investor\u2019s opinion on appropriate pricing. <\/p>\n And again, this selloff proves that the average investor either:<\/p>\n I pound the table here and on the podcast<\/a> that stocks are a long-term investment. For most of us, a 10+ year investment. <\/p>\n This is a cool chart. It shows VT<\/strong> (Vanguard\u2019s Total World Stock ETF). It has 10 years of data. It is inflation-adjusted, meaning the returns show a true increase in purchasing power. And it includes the past couple days of turmoil. Dividend reinvestment is included. <\/p>\n Even including the recent days, and despite the constant drag of inflation, an investor\u2019s real returns (real!) have been 6.2% per year! (without inflation, or in nominal terms, it\u2019s 9.8% per year)<\/em><\/p>\n The point being, when judged on the 10+ year timeline that I think about, stocks have been a wonderful investment over the past decade. <\/p>\n Now, will that continue for the future? I don\u2019t know. Nobody does. But I am betting on it. <\/strong><\/p>\n It might sound crazy, but yes. I am still following my personal predetermine rebalancing rules. <\/strong><\/p>\n In other words, I am not selling stocks. I am buying stocks. <\/strong><\/em><\/p>\n It\u2019s not easy. But this is the way. <\/p>\n Personally, I rebalance both based on calendar<\/strong> and on thresholds<\/strong>. Meaning, I rebalance every 6 months, simply to ensure that I won\u2019t go years without doing it. I\u2019ll also rebalance when my portfolio allocations go more than 5 percentage points off target<\/em>. <\/p>\n Most likely. Tariffs are inflationary, as a portion of the tariff tax gets passed through to final prices we all pay. <\/p>\n Possibly. As businesses struggle to cope with increased costs, they could look to cut labor costs (a.k.a. lay off their staff). <\/p>\n If you don\u2019t have a substantial emergency fund, consider building one now. <\/p>\n Certainly, for the same reasons listed above. <\/p>\n Well, not great. Again, the self-inflicted nature of this feels bad. <\/p>\n But, this is the magnitude of risk I signed up for when investing in stocks in the first. Actually, I take that back. I signed up for WAY<\/strong> more potential downside risk than this. <\/p>\n From the rooftops, I\u2019ll shout that stocks can<\/em> and likely will again<\/em> go through (-50%) drawdowns, or more!<\/strong> This drawdowns can last months, perhaps even a few years. We are not there yet. Not even close. <\/strong><\/p>\n As I type this, I\u2019ve been refreshing the S&P 500 futures price from (-3%) to (-4%), and soon it looks like (-5%). It\u2019s only been 90 minutes! This feels like a the classic combination of: <\/p>\n Yet, I will stay the course<\/a>.<\/p>\n I won\u2019t panic<\/a>.<\/p>\n The market can rip positively, too. It has before. And it\u2019s impossible to predict that future.<\/a><\/p>\n And if all else fails, read this letter I wrote myself in case of a market crash.<\/a><\/p>\n (Read these links above! They\u2019ll help!)<\/em><\/p>\n Good luck, and let me know how you\u2019re doing. <\/p>\n All the best,<\/em><\/p>\n Jesse <\/em><\/p>\n Thank you for reading! If you enjoyed this article, join 8500+ subscribers<\/strong><\/a> who read my 2-minute weekly email, where I send you links to the smartest financial content I find online every week. You can read past newsletters<\/strong><\/a> before signing up.<\/p>\n On that note, our podcast \u201cPersonal Finance for Long-Term Investors\u201d<\/a><\/strong><\/em> is by far outpacing this written blog. Tune in and check it out.<\/a> <\/strong><\/p>\n -Jesse<\/p>\n![\"\"](\"https:\/\/bestinterest.blog\/wp-content\/uploads\/2025\/04\/Screenshot-2025-04-06-at-6.52.52\u202fPM-1024x680.png\")
<\/figure>\n<\/div>\nWhat\u2019s a Tariff? <\/h2>\n
Why Enact Tariffs?<\/h2>\n
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Who Actually Pays For the Tariff? <\/h2>\n
![\"\"](\"https:\/\/bestinterest.blog\/wp-content\/uploads\/2025\/04\/image-14.png\")
<\/figure>\n<\/div>\nSo, Tariffs Are Bad? <\/h2>\n
![\"\"](\"https:\/\/bestinterest.blog\/wp-content\/uploads\/2025\/04\/image-15.png\")
<\/figure>\n<\/div>\nWhy Did the Markets Drop? <\/h2>\n
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How Can *Everything* Be Down? \/ How Can *Nobody* Benefit? <\/h2>\n
Why Is This Time Different? <\/h2>\n
![\"\"](\"https:\/\/bestinterest.blog\/wp-content\/uploads\/2025\/04\/wrong-basket-gif-1.gif\")
<\/figure>\n<\/div>\n\n
But Markets Always Come Back, Right? <\/h2>\n
They Say, \u201cYou Can\u2019t Beat the Market.\u201d<\/em> How Was the Market \u201cWrong\u201d By 10% over Two Days?! <\/h2>\n
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Should I Sell All My US Stocks? All International Stocks? All Stocks?<\/h2>\n
![\"\"](\"https:\/\/bestinterest.blog\/wp-content\/uploads\/2025\/04\/Screenshot-2025-04-06-at-11.16.54\u202fAM-1024x518.png\")
<\/figure>\n<\/div>\nAre You Rebalancing? <\/h2>\n
![\"\"](\"https:\/\/bestinterest.blog\/wp-content\/uploads\/2025\/04\/image-12.png\")
<\/figure>\n<\/div>\nWill Tariffs Affect My Monthly Budget?<\/h2>\n
![\"\"](\"https:\/\/bestinterest.blog\/wp-content\/uploads\/2025\/04\/image-17-1024x576.png\")
<\/figure>\n<\/div>\nWill Tariffs Affect My Job?<\/h2>\n
Will Tariffs Affect My Business?<\/h2>\n
How Should I Feel? (And How Do You<\/em> Feel, Jesse?)<\/h2>\n
![\"\"](\"https:\/\/bestinterest.blog\/wp-content\/uploads\/2025\/04\/image-10.png\")
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