While Prime Minister Justin Trudeau’s resignation is fuelling uncertainty among Canadians regarding the direction of the country, financial markets have been surprisingly resilient in reaction to the news, says Francis Gingras Roy, a senior investment advisor with Manulife Financial Corp.
He notes when Trudeau announced his resignation last Monday, the TSX ended the day pretty flat. “A prime minister [of] a major country is resigning . . . and the . . . market isn’t even reacting to such a big event. So, we think that it was priced in already a long time ago. People are expecting the Liberals to lose power . . . so it’s not such a big deal.”
Read: What could a second Trump presidency mean for Canadian institutional investors?
Unless Canadians go to the polls and change governments, Gingras Roy doesn’t expect a radical change in the Liberal Party’s economic policies. The looming question, he says, is how the new leader will set the tone for negotiations with President-elect Donald J. Trump on his threat to impose tariffs on all Canadian imports when he takes office later this month.
In November, Trump announced that one of his first executive orders will be to put tariffs on all products entering the U.S. from Canada and Mexico until both countries take steps to stem the tide of illegal immigrants and drugs crossing their borders into the U.S.
If Trump goes through with his threat, it could upend retirement planning for millions of Canadians, says Gingras Roy. He warns the tariffs could increase the cost of living for many Canadians, reducing the purchasing power of their savings and destabilizing investment portfolios reliant on cross-border trade. “We have to take [the incoming president] seriously,” he said, noting Trump’s first term has shown that tariffs are a weapon he’s willing to wield to get to an end result.
He notes agriculture and manufacturing, especially the steel, aluminum and lumber markets, may be most affected by the tariffs, adding the auto industry, in particular, could take a large hit.
The best way retirees or near retirees can protect themselves from the consequences of these tariffs is by ensuring their retirement savings investment portfolios are diversified, Gingras Roy adds, noting exposure to different industries and diversification across asset classes and geographical locations can help reduce risk.
He says employers can help their employees navigate this fraught economical environment by providing financial education sessions. While defined contribution plan members usually have a financial advisor available to them through the plan, he encourages employers to increase their resources to include investment courses, including education on how to manage short-term volatility by taking a long-term view.
For those considering changing their risk profiles in their workplace DC plans, Gingras Roy suggests they stay the course on their current strategy, as moving to a low- or medium-risk profile could lead to more exposure to fixed income and short-term instruments dependent on interest rates and subject to inflation risk. But he says every situation is different and it’s critical that retirement savers check in with their financial advisors and planners to find the right strategies and solutions that work best for their retirement goals.