The message delivered by American voters on Election Day was deceptively simple: Those who went to the polls think it’s time to put “America first.”
Unfortunately, as much as President-elect Donald Trump believes that he can dictate terms to the rest of the globe — including recent suggestions to make both Greenland and Canada part of the U.S. — the realities of protectionism and a possible trade war are starting to hit home.
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First, other nations are taking actions of their own. Most notably, China has quickly issued preemptive tariffs and bans on the export of critical minerals to the U.S. Secondly, domestic groups are voicing concerns that a trade war will only increase costs to U.S. consumers rather than punish foreign entities or provide America a competitive advantage. The Tax Foundation, for instance, estimated that prior Trump administration efforts “imposed nearly $80 billion worth of new taxes on Americans by levying tariffs on thousands of products.”
With figures that large, it’s no wonder that many investors are getting nervous that a trade war may have serious consequences. For those wondering what moves to make to minimize these challenges, here are a few ideas investors can take to shelter from a looming trade war in 2025:
— Regional banks.
— Small-cap stocks.
— Utilities.
— High-quality bonds.
— Gold.
— Digital assets.
— Familiar index funds.
Regional Banks
A piece of Wall Street that offers a domestic focus free from international trade is the regional banking sector. As the term implies, this subsector of the financial industry excludes megabanks like JPMorgan Chase & Co. (ticker: JPM
) and instead includes banks that are small and midsized institutions focused on mortgages and small business loans over complex but lucrative investment arms.
The top ETF to play this trend includes the SPDR S&P Regional Bank ETF (KRE), a roughly $5 billion fund that dominates the space and whose holdings have a median market capitalization of around $2 billion across roughly 140 names. Investors looking for individual stocks in their own backyard may want to look no further than local public bank chains in the vein of New Jersey’s Valley National Bancorp (VLY), Mississippi’s Cadence Bank (CADE) or Missouri’s UMB Financial Corp. (UMBF), to name a few.
Small-Cap Stocks
While there are small-cap stocks that rely on overseas sales, it’s generally a good approach to focus on smaller corporations if you want to avoid multinational businesses with significant exposure to global trade wars. The trick is that you have to do your own research to ensure this is the case — and, of course, be comfortable with comparatively more risk in smaller and unproven companies versus established blue-chip stocks.
To this end, consider diversified index funds tied to small-cap stocks, including the iShares Core S&P Small-Cap ETF (IJR), the iShares Russell 2000 ETF (IWM) and the Vanguard Small-Cap ETF (VB). All hold hundreds of small U.S. stocks — and as a result, have a lot of companies that are focused on modest domestic operations over overseas growth.
Utilities
If you want large and established stocks that are still laser-focused on their local customers, one sleepy sector to consider is utilities. After all, while there are many publicly traded utilities, these businesses are often legalized monopolies that are geographically dominant, highly regulated and far too expensive for any competitors to quickly or effectively spin up an alternative. As an added bonus, utilities provide the necessity of electricity that has strong baseline demand even if a trade war does shock the broader global economy.
As with these other approaches, a diversified ETF like the Utilities Select Sector SPDR ETF (XLU) could do the trick. But if you just want to focus on the big dogs, then leaders NextEra Energy Inc. (NEE), Southern Co. (SO) and Duke Energy Corp. (DUK) are collectively valued at more than $300 billion and are natural choices for single-stock investors.
High-Quality Bonds
For those worried not just about sectors in the stock market but the entire equities market, investment-grade bonds are a good choice. These are high-quality debt securities from firms with good credit ratings — specifically, a rating of BBB or better, with those below that treated as “junk” bonds that demand a very high yield to offset their risky and more speculative nature.
There happens to be a correlation between risk and return, however, so high-quality bonds may not yield a tremendous amount. For instance, the leading Vanguard Total Bond Market ETF (BND) — with more than $120 billion in assets under management — only yields about 4.6%. By cutting out rock-solid but lower-yield U.S. Treasury bonds and focusing solely on corporate debt, you can boost that a bit with funds like the Vanguard Intermediate-Term Corporate Bond ETF (VCIT), which yields 5.3% at present. But a 5% annual return is a far cry from the 20%-plus annually we’ve seen from the stock market over the prior two years — and of course, low risk doesn’t mean no risk, so there’s still a chance of principal declines in bonds amid a trade war.
[READ: 5 Great Fixed-Income Funds to Buy for 2025]
Gold
The go-to alternative asset, gold is often seen as a store of value in troubled times. It also is a natural hedge against inflation that may occur if supply chain disruptions drive up prices. Amid these trends lately, gold has been having quite a run, boasting gains of more than 30% over the last 12 months. The big thing to remember about gold is that, over the long term, the precious metal does tend to underperform equities quite dramatically. But if you’re looking for a short-term hedge or simply some peace of mind in the current environment, there are several ETFs linked to physical gold to avoid the hassle of storing bars or coins in a safe at home.
These include SPDR Gold Shares (GLD) and iShares Gold Trust (IAU) as go-to alternatives to purchasing physical bullion directly. They are easy-to-trade alternatives, making them very attractive to gold investors worried about a trade war in 2025.
Digital Assets
If you want the ultimate alternative asset, then it may be time to consider digital assets including Bitcoin or even Ethereum. Though undoubtedly a bit volatile, cryptocurrencies do have a track record of being uncorrelated to the stock market, and thus are a useful asset class for those looking to diversify. Furthermore, there are many established exchange-traded products available in mainstream investment accounts if you don’t want the complexity of managing your own digital wallet.
These include the oldest Bitcoin-linked ETF, the ProShares Bitcoin Strategy ETF (BITO), which is tied to Bitcoin futures contracts, and the Grayscale Bitcoin Trust (GBTC) that launched in 2024 as a so-called spot Bitcoin ETF after those fund types won approval from the Securities and Exchange Commission. No investor should ever totally rely on digital assets (or any other single asset) with their nest egg if they care about diversification and lowering their risk profile. But a responsible allocation toward digital assets in 2025 may be a way to provide a hedge against any fallout from a global trade war.
Familiar Index Funds
Of course, while it’s tempting to make some big moves in anticipation of a complicated year on Wall Street, history shows that this active approach is really only good at increasing your chance of underperformance in the long run. A recent Barron’s tally notes that “over the past decade, an annual average of only 27.1% of actively managed funds benchmarked to the S&P 500 outperformed it.” In other words, your best move in 2025 may be to avoid getting cute by moving things around and to just stick with the proven, low-cost approach of index funds.
Among the standouts for that strategy are the two largest ETFs of any type on Wall Street: the SPDR S&P 500 ETF Trust (SPY) and the iShares Core S&P 500 ETF (IVV). They may not be creative, but they have staying power regardless of the latest headlines — and tracking the S&P 500 tends to be a pretty lucrative strategy over a long enough period.
[See: What’s the Best Cryptocurrency to Buy? 6 Contenders]
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7 Ways to Shelter From a Trade War originally appeared on usnews.com
