Navigating Tariffs with Dave Ramsey’s Four Investment Categories

 In a global economy where international trade policies, such as tariffs, can heavily affect an investor’s portfolio, understanding how different types of companies will be affected by these shifts is valuable for investors to understand their portfolios. This article looks at Dave Ramsey’s four investment categories—Growth, Growth & Income, Aggressive Growth, and International—and examines how potential tariffs will likely affect each category.

Growth

The Growth category consists of already large, well-established companies that expect to continue to grow. Examples include Apple, Amazon, Microsoft, and Ralph Lauren. A lot of Growth companies would also be considered blue-chip companies.

Of all four categories, the Growth category will most likely feel the weight of the potential tariffs the most. Due to the size of these companies, most have heavy international reach in one way or another. Whether companies get materials from foreign countries, build products in a foreign country, or sell the products in foreign countries, they will feel the impact of tariffs that may be put in place. At some point in their business process, these companies will be forced to pay higher prices for their products, which will inevitably be passed to consumers. Higher prices typically decrease sales of a product. Additionally, when U.S. products are more expensive in a foreign country, consumers of that country will be driven to the cheaper alternative, which will most likely be the products made in that country.

Growth & Income

The Growth & Income category consists of large, well-established companies, but don’t expect to see rapid growth like the Growth category does. Because of this, these companies pay dividends to their shareholders as an incentive to invest with them. Some examples of this category are McDonald’s, Walmart, Exxon Mobile, General Electric, and more.

Much like the growth category, the size of these companies most likely expands into international business. However, the Growth & Income category is a highly diverse group of types of companies, and the degree of effect of the tariffs depends on the kind of company. A company like Walmart, which sells a large portion of imported products, will feel a significant hit due to the increase in product prices to sell due to the tariffs. On the other hand, a company like McDonald’s, whose international reach is simply having locations in foreign countries, has almost all of their products are sourced locally for the restaurant, meaning they do not import many, if any, products. Because of this, they will not feel much of an impact from the tariffs at all.

From the investor side, these companies are typically built to be good investments as they will try to continue providing dividends to their shareholders. There may be slight dips in stock price due to the tariffs, but the dividends will ease that dip. Additionally, you will not have officially lost anything until these stocks are sold, which means your account will continue to grow (although the dips may make it not seem that way) as you are paid the dividends from these companies.

Aggressive Growth

The Aggressive Growth category includes smaller companies looking to grow in size. Some well-known examples of this are Chipotle, Roku, Hasbro, GAP, and more. Although these may seem like big, well-established companies, they are still relatively small compared to some other companies in terms of their market share.

Companies in the aggressive growth category are expected to do well if tariffs are implemented. Tariffs will make the products foreign companies send to the U.S. more expensive. Consumers are almost always driven to the less expensive product. Since U.S. company products will remain at the same price while foreign products will become more expensive, more consumers will be driven to the domestic products. This will increase sales and revenue for the U.S. companies.

It is also important to consider the smaller size of these companies. Most smaller companies are not built to have the same reach as the bigger companies. Although it is not a uniform rule across the board, most smaller companies do not have the international reach that big companies have, if they have any at all. Without the international pull, these companies will feel much less of the tariffs negatively, if they feel it at all. When factoring this all together, the companies in the aggressive growth category will feel little to no negative impact from the impact while simultaneously getting a boost in revenue as consumers are driven to their now cheaper products.  

International

The International category includes companies based outside of the U.S. There are around 54,000 companies located outside of the United States. In comparison, only around 10,000 companies are located inside the U.S. This means there is a lot more investment opportunity outside the U.S. than within. Many of these companies are unfamiliar to U.S. citizens, but some well-known examples include Sony, Nestlé, Samsung, and many more.

International companies are expected to do well in the wake of the potential tariffs being implemented. Tariffs will make U.S.-exported products more expensive in other countries. Since consumers are almost always driven to the less expensive product, more expensive U.S. products will drive consumers to the products produced in that country. International companies will likely see an increase similar to the aggressive growth category. They will likely see an increase in sales and revenue from these tariffs, and will likely perform well in these times.

It also helps that the U.S. dollar will most likely become weaker globally because of this. As the U.S. dollar weakens, foreign currencies will become relatively stronger for the most part. A stronger currency will be very beneficial for the foreign companies, as it will make their currency able to buy more.

This is why Dave’s four categories are so important to invest in over the long run. They are designed to minimize risk in uncertain times, mitigating dips in the market to feel less of an impact in your portfolio than if you were only investing in one category.

The Expertise of a Financial Advisor

Knowing and understanding how current economic situations, such as possible tariffs, can affect investments can be confusing, overwhelming, or even scary at times. But that is why having the help and expertise of a financial advisor is so beneficial.

If you would like to meet with one of our financial advisors to discuss this more in-depth, review your investments, or create a financial plan, reach out to a member of our wealth management team today!