In a few sleeps, Donald Trump will move into the White House.
Published at 8:00 a.m.
What does his presidency have in store for us? I often have the impression that he himself doesn’t really know.
I try not to always pay attention to what Trump says. But last Tuesday, he promised to wage an “economic war” against Canada, with customs tariffs of 25% on products from here.
Economists believe that these tariffs could have an impact twice as strong as the COVID-19 crisis on the Canadian economy. The unemployment rate would be rising sharply. The Bank of Canada could lower its rates further.
On the other hand, if Ottawa were to adopt retaliatory tariffs, this could cause inflation and rates could rise sharply instead.
Is this going to happen? Trump seems to be keen on it. You never know.
Whether you have a mortgage, loans, financial investments – or, say, a job – this kind of talk from the most powerful man in the world may make you nervous.
So here are some ways to prepare for the Trump era.
Pay off your debts
We may be entering an era where carrying around large debts is not a good idea. Try to reduce your debt, or avoid taking on more debt for a non-essential project. Prioritize the most expensive debts in interest, such as credit card debt. And I’m not talking about a little $100 reimbursed from time to time: I’m talking about a demolition. Like: no restaurant, cinema or afternoon at DIX30 as long as the credit card or line of credit does not show zero. And remember my golden rule: we should never spend the bank’s money on our transportation needs.
Have an emergency fund
Imagine that your pay was to stop being deposited into your account tomorrow morning. How long could you live on your reserves? If you can’t last at least three months, now is the time to build an emergency fund. Some people put their emergency fund at the bank in a high-interest account, but such accounts are not very generous at current rates. One option is to put the money in an exchange-traded fund (ETF) that invests in high-interest savings accounts, such as CASH or HSAV funds. A TFSA can also serve as an emergency fund, because you can liquidate investments quickly, not pay taxes, and re-contribute the amounts the following year.
Use tax shelters
Speaking of TFSA: when Ottawa offers us tax shelters, it’s a good idea to use them. Since the introduction of the TFSA in 2009, the cumulative contribution limit has reached $102,000, meaning that a couple who were at least 18 years old in 2009 can contribute up to $204,000 in total into their TFSAs. Contributions to the TFSA do not generate a tax deduction, but can grow indefinitely tax-free, and disbursements do not reduce old age assistance from Quebec and Ottawa. In short, the TFSA is a legal tax haven.
Furthermore, the RRSP allows you to contribute 18% of your income from the previous year, up to a contribution of $32,490. And contributions generate tax deductions.
Finally, parents should open a registered education savings plan (RESP) as soon as a child is born. To obtain full assistance from Quebec and Ottawa, you must contribute $2,500 per year per child, which amounts to approximately $200 per month. Some parents stop contributing after a few years under the pretext that the amounts accumulated are too large compared to the potential costs of education. This is a mistake: the amounts contributed go 100% to the parents upon disbursement. It is the subsidies and growth that are forced into the hands of the child. It is not your dollars that pay for studies, but rather those generated by your investments, as well as money from Quebec and Ottawa.
Diversify your portfolio
A study published in 2022 in the Journal of Finance found that after Trump’s 2016 victory, Republican investors increased the stock portion of their investments, while Democratic voters tended to sell stocks to buy bonds. In short, investors were optimistic or pessimistic depending on their political preferences. My advice? Never mix investment and politics. The best approach is to have a diversified portfolio in thousands of companies located in Canada, the United States, developed countries and emerging countries. We can thus ensure that we can experience long-term growth, wherever it is in the world.
Read the study Journal of Finance
Ignore what you can’t control
Alcoholics Anonymous groups say this prayer at the beginning of each meeting: “God, give me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to know the difference. » If I could form a group of Anonymous Investors, I would adopt the same prayer.
Avoid Fear-Based Decisions
What do I plan to do with my investments over the next year? Nothing. I buy when I have money to invest. I sell investments if I need cash. And that’s it. Crisis or not, all I know is that the economy is like the weather: all we can do is avoid being surprised by string when it’s -20°C. The rest is moving forward. One day at a time.
