Posted by Income Taxes and Bookkeeping LLC

Can Trade Wars Affect Your 401(k)?

Can Trade Wars Affect Your 401(k)?

A trade war occurs when one nation imposes quotas or tariffs on imports, and foreign countries respond with similar trade protectionism. With the escalation, a trade war reduces international trade.

A trade war begins when a nation seeks to protect its national industry and create jobs. It usually works in the short run. The tariffs should give local producers a competitive advantage. Their prices would be lower in comparison. In return, they would get more orders from local customers. As their business grows, they create more jobs.

However, in the long run, trade war costs jobs. It depresses the economic growth of all the countries concerned. Inflation also begins when tariffs increase the prices of imports.

For instance, Smoot-Hawley was designed to support American farmers devastated by the Dust Bowl. But food prices were increased for Americans already affected by the Great Depression. Other countries responded with their own tariffs. The trade war diminished international trade by 65% . It ended up turning a recession into a depression and contributed to the outbreak of World War II.

Now, the US stock market has hit record highs in the past two years. So why are the returns on investment so low? After you factor in the administration costs, your savings might actually be losing money. You might be wondering how this can happen while the stock market is still bullish. The quick answer is trade wars. You need to know how the trade wars damaged your retirement investments.

Many retirement accounts invest primarily in equity-indexed funds. The current administration has been embroiled in tariff wars across the world. As a result, equity index funds barely rose during this period. Just as you need to increase your retirement account to prepare for retirement, your hard-earned retirement account might only just be treading water.

The president asserts that the S&P 500 index has hit all-time highs, but the real numbers look different. Over the past two years, the S&P 500 has experienced an annual growth rate of 2.9%, which barely kept pace with inflation at the time.

Shortly after the election, there were initial gains in the S&P Index, but those gains slowed down, and the index is now substantially stable. Taking the whole period since the 2016 election, the S&P 500 rose at the same rate from 2008 to 2016, even during the Great Recession.

Economists say trade wars with so many other countries have caused significant damage to the economy, but people don't realize it because they don't read their 401 (k) statements. Some experts argue that the trade wars have affected the S&P markets in the United States and the entire world market. When a trade war slows the US economy, it pulls down the markets of other countries, which depend on a strong US market.

How to protect your 401(k)

Disclaimer: This article does not provide investment advice. You should consult a trusted financial advisor before deciding how to protect your savings. In addition to getting professional advice, there are some things every investor should know.

Be well informed about the issues affecting the economy. Get information from unbiased sources without political affiliation. Find out what factors affect the economy and how current events may affect your 401 (k) investment.

Get or download your latest 401 (k) statement. Then get the statements from one, two, three, four, five, and ten years ago. Determine the yearly growth rate of your investments based on the years you've collected. The total value of your account should increase from year to year as you and your employer regularly contribute to your account. The total amount may also increase if the investment does not increase or grow due to the withholding of contributions and the corresponding employer contributions.

In addition to these contributions, you must determine how much your 401(k) is growing. Your plan administrator should be able to answer this question for you. If you are not satisfied with the growth rate of your 401(K), you may want to consider if reallocating some of your 401(K) will be a good financial decision.



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