As negotiations over NAFTA and other trade deals slog on, it's best to take it easy when it comes to adjusting your investments.
Just as it's usually impossible to time the market, experts consider it unwise to base major portfolio decisions now on the outcome of Canada's talks over the North American free-trade agreement and other significant trade relationships.
"Too much investment news is sometimes referred to as investment porn. Too much of it gets the emotions flowing," says Sandra Foster, president of Headspring Consulting Inc. and a Toronto-based financial author and advisor.
It's no secret that NAFTA negotiations between Canada, the United States and Mexico have not been going well. On Oct. 17, the three countries agreed to extend negotiations into the first quarter of 2018, citing "significant conceptual gaps."
Just how significant those differences are remains to be seen. What happens early next year in the negotiations is as hard to predict as the contents of U.S. President Donald Trump's next tweet.
By agreeing to extend the negotiations, it means the president "wasn't ready to pull out, and neither were the other two countries," says Bernard Wolf, professor emeritus of economics and international business at York University's Schulich School of Business in Toronto.
"But given his protectionist stance and all that he said [about NAFTA] during his 2016 election campaign, it's difficult to determine what he's going to do."
It's not only NAFTA and Mr. Trump's mood swings that are creating uncertainty over the composition of portfolios. Nearly a year and a half after British voters opted narrowly to leave the European Union, negotiations over Brexit are mired in procedural detail.
There's a difference of opinion on both sides over whether Britain can – or should – go for a "hard" Brexit (simply leave the EU) or transition toward a less close trade relationship with Europe after Britain leaves in 2019.
In Asia, Canada, Japan and other countries are attempting to salvage the remnants of the Trans-Pacific Partnership (TPP), a free trade agreement negotiated between 12 nations and signed in 2016.
Make that 11 nations now – Mr. Trump quickly withdrew his country from the TPP, leaving the deal's future and its possible effectiveness without the United States uncertain.
When it comes to investors whose portfolios are weighted heavily in North American holdings, it may be tempting to consider going short on stocks that rely on continent-wide trade and supply chains, for example auto-parts manufacturers, cross-border transportation and logistics firms and agricultural suppliers.
But that's probably not wise, says Markus Muhs, portfolio manager at Canaccord Genuity Wealth Management in Edmonton.
"For long-term investors, the less they pay attention to the news, the better. Over the long term, a globally diversified portfolio of stocks trends upward, with only temporary setbacks along the way," he says.
"That long-term growth rate averages out to a pretty decent number. Along with a disciplined savings strategy, it will facilitate a good, dignified retirement for most of us."
It's true that portfolios could be affected if NAFTA collapses or a new deal is struck that brings new and significant setbacks to particular sectors – in any of the three countries.
"NAFTA has been the cornerstone for strong economic growth and rising prosperity for Canada, the United States and Mexico since 1994. The U.S. remains Canada's No. 1 trading partner, with Canada's key exports being oil and automotive vehicles," says Neville Joanes, chief investment officer at WealthBar Financial Services Inc., a robo-advisor service headquartered in Vancouver.
An "imbalanced" trade deal "will be to the detriment of Canada and Mexico, and will impact currency, relative interest rates and economic growth," he says. The difficulty is that no one knows yet what kinds of imbalances might materialize, or indeed, whether they will materialize at all.
"History has shown, time and again, that investors who have patience do vastly better than those who actively trade," says Andrea Thompson, senior financial planner at Coleman Wealth, Raymond James Ltd. in Toronto.
"Once you build a quality portfolio that suits your plan, you shouldn't change it based on the headlines. The portfolio should really only change when your plan changes."
If you really feel you must tinker with your portfolio, Ms. Foster of Headspring Consulting Inc. suggests, you should err on the side of caution, lowering your exposure to risk.
"When the market itself becomes riskier, some investors rebalance their equity holdings to the lower end of their recommended range. For example, if the recommended range for equity holdings is 30 to 40 per cent of their portfolio, the investor might decide to reduce equity holdings to 30 per cent," she says.
At WealthBar, Mr. Joanes suggests being patient and watchful.
"We will monitor the [NAFTA] negotiations and await the outcome. Then we'll evaluate changes to portfolios," he says.