Tariff Wave Ahead: Should You Make Shifts to Your Portfolio?

As of Aug. 4, President Donald Trump has imposed tariffs on 60 vital trading partners, claiming each country has inadequately enforced bans on goods produced by forced labor. Because tariffs raise the price of imported goods and tend to weaken the U.S. dollar, companies that depend on foreign products pass those increased costs on to consumers, leading to inflation and investor confusion.

With Trump's proclivity for pressing tariffs, now may be a good time to focus on how his trade decisions impact your portfolio -- both over the short and long term.

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What not to do

Knee-jerk reactions to any situation rarely lead to gains. If your portfolio is full of companies you've researched and believe in, there's no reason to turn away from those investments. Historically, staying invested in a diversified portfolio over the long term has produced better outcomes than short-term trading based on market conditions. While current tariffs may negatively impact portions of your portfolio, the longer you hold, the more unsettled periods tend to average out.

Shifts are often unnecessary simply because of the types of investments you hold. For example, if you're invested in U.S.-based supply chains, consumer staples, healthcare, or utilities, your portfolio may have benefited from tariffs due to reduced international competition.

However, if you're planning to expand your portfolio beyond its core holdings and are looking for investments likely to withstand future tariffs or trade wars, you may want to consider those with a good chance of sailing through even long-term tariffs.

Seeking a measure of safety

There are investments known for helping keep a portfolio afloat during turbulent times. While these holdings aren't always exciting and don't tend to deliver the same awe-inspiring return on investment as others, they are an excellent way to balance your portfolio. Here are two examples.

Commodities

Investing in commodities -- including precious metals like gold and silver, energy products such as crude oil and natural gas, industrial metals such as copper and aluminum, and select agricultural goods -- can be sensible investments when tariffs are in place. Commodities tend to benefit from inflationary pressures and supply disruptions and, as real assets, can serve as a hedge against purchasing-power erosion.

If you're interested in commodities but want a little diversification, a commodity exchange-traded fund (ETF) may fit the bill.

Bonds

Because bonds are less sensitive to market fluctuations caused by tariffs, they can be a port of stability in tumultuous markets. If you truly want to spread your risk, the Vanguard Total Bond Market ETF (NASDAQ: BND) -- which tracks the Bloomberg U.S. Aggregate Float Adjusted Index -- holds more than 11,400 bonds, including U.S. Treasuries, mortgage-backed securities, and investment-grade corporate bonds.

While now is not a good time to make emotionally driven or impulsive decisions, it may be a good time to consider your next moves if you're planning to expand your holdings anyway.

Dana George has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard Total Bond Market ETF. The Motley Fool has a disclosure policy.