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  • Marc

The impact of a US-China trade war on your portfolio

Unless you have been living under a rock recently, you are certainly more than aware of the current trade tariffs being implemented by the Trump administration on Chinese imports into the US and vice-versa by the retaliation tariffs imposed on US imports to China.

While this drama plays out like a daily soap opera dominating the financial press in the most recent days, let us take a measured look into the greatest dramas dominating the financial press from 1970 until today and put equity market returns into perspective in light of these past crises.

The most adequate instrument to ascertain if an investor should really pay much attention to headline-grabbing news stories since 1970 is the MSCI World Index in the picture below:

News and financial commentary has the power to heavily distort people’s view of investing in the short run. Without a strong investment philosophy to guide them, investors may follow the advice of friends, neighbours, or family, especially if the “insight” promises a fast, easy return (think Bitcoin and other crypto currencies), or equally detrimentally, being influenced by scare-mongering headlines like “US-China trade wars” as in these past couple of days. Fickle investors might be tempted to not invest at all with such a trade war dominating the financial press. But the price such an investor pays is not to participate in the strong equity returns, as depicted in the graph above.

Growing wealth has no shortcuts. Success requires a solid investment approach, a long-term perspective, and discipline to stay the course. Relying on an evidence-based, low-cost index fund investment approach within your risk profile, based on the ideas of Nobel Laureates, gives you the stamina and discipline to sail through rough waters. And this is ultimately the key to long-term investment success as outlined in the MSCI World Index picture above with a compounded annual growth rate of 9%, growing an investment of $1 in 1970 to $59 by end of 2017, i.e. leading to a 59-folding of the initial 1970 investment over 47 years. And believe me, these 47 years were peppered with lots of drama, as outlined in the blue commentary bars in the picture above. As such, stay the course, stay globally diversified and you shall be rewarded as an investor!

Source: MSCI data in USD © MSCI 2018, all rights reserved.

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