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AI and Investing: Why Human Judgment Still Matters – May, 2026

Why experience, governance, and accountability become more valuable as AI becomes more powerful

AI is changing investing, but not in the way most headlines imply. The tools are impressive. They are also increasingly available to everyone. When intelligence becomes abundant, the differentiator shifts from information to decision quality: how we frame trade-offs, how we manage risk when conditions change, and how we stay disciplined when markets and life both turn volatile.

Investors can use AI to move faster and see clearer, but they should not outsource judgment. Judgement is deciding what matters, what can go wrong, and what to do when it does.  Just having access to a broad fund investment platform does not assist in making investment decisions which will meet your long-term investment goals and objectives.

What AI changes (and what it does not)

AI is exceptionally good at tasks that are repeatable, data-heavy, and time-consuming:

• Summarising large volumes of information quickly and consistently
• Screening and comparing companies, funds, and portfolios against defined criteria
• Surfacing patterns, correlations, and anomalies worth investigating
• Generating scenarios and questions that a good investment committee should pressure-test
• Drafting first-pass research notes that a human can then verify and refine

But AI does not carry responsibility. It does not sit across the table from a family during an economic crisis such as the Global Financial Crisis or COVID crash. It does not decide what risks are acceptable, which trade-offs are worth making, or how to balance growth with liquidity, taxation, succession, and peace of mind. Those decisions remain human, and they become more important as tools get more powerful.

The new scarcity: judgment under uncertainty

As financial analysis becomes commoditized, the advantage moves the value chain: framing the right question, identifying what matters, and making decisions when there is no clear answer. This is where experience pays for itself. Markets can move abruptly. Correlations change. Liquidity disappears. Narratives shift. The investor who survives and compounds their financial returns is rarely the one with the most information. It is the one with the fewest unforced errors.

Where judgment shows up in real portfolios

Judgment is not a slogan. In wealth management, it shows up in a few practical places:

• Risk before return. What could break this thesis, and how does one size the position so the portfolio survives being wrong?
• When the macro Situational  backdrop changes, yesterday’s playbook can become tomorrow’s trap.
• Behavioral discipline. Most damage is done at the extremes: chasing what just went up, and selling what just went down.
• Constraints that matter. Liquidity needs, currency exposure, concentration, taxes, time horizon, and family commitments are not footnotes. They are the design inputs.
• Decision governance. Clear guardrails reduce emotional decisions and protect both capital and relationships, especially across generations.

How investors can use AI responsibly

A simple operating principle helps: use AI to improve clarity and execution, but keep responsibility, judgment, and values human.

• Faster research triage: AI can be used to summarise, organise, and compare sources, then an investor verifies the facts and forms a view.
• Better questions: AI can be used to generate counterarguments and scenario checklists to stress-test a thesis.
• Operational leverage: AI can reduce manual work in monitoring, note-taking, and documentation so more time is spent on decision-making.
• Auditability: Treat AI output as a draft. Ensure conclusions are reviewable, explainable, and consistent with the investor’s objectives and constraints.

Practical takeaways for investors

• Do not confuse output with truth. AI can sound confident and still be wrong. Treat it as a starting point, not an authority.
• Write down your decision rules in advance. An Investment Policy Statement (even a simple one) reduces panic decisions during volatility.
• Optimise for staying power. The best strategy is the one you can hold through a full cycle, not the one that performed well over the the last six months.
• Beware hidden concentrations. Many portfolios look diversified but share the same underlying risk factors.
• Use technology to save time, then invest that time in thinking. The edge is not more information but rather better judgment.

AI will keep compressing the cost of analysis. That is good news. But it does not eliminate uncertainty, emotion, or responsibility. For individuals and families building long-term wealth, the lasting advantage is still human: judgment earned through cycles, disciplined risk governance, and clear decision-making when it matters most.

Efficient capital allocation requires both human knowledge and experience to assess the quality of underlining assets as well as the capacities of humans who manage them.

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The Wealth Management Blind Spot: Why “Situational Awareness” is the Investor’s Greatest Asset – February 2026

The Cabin and the Curb: A Lesson in Awareness

The concept of situational awareness first began to take shape during a quiet morning at my cabin in the Canadian woods. Sitting by the fire with my brother, we reflected on our upbringing in a rural environment. Growing up close to the land, you develop an innate sense of direction; you are always acutely aware of your surroundings, the weather patterns, and the subtle shifts in the landscape. It is a survival mechanism—knowing where you are in relation to everything else.

As we transitioned into our lives in urban centers like Hong Kong and Calgary, we noticed a stark contrast. In the city, situational awareness is often traded for digital immersion. We see it every day: pedestrians stepping into traffic with noise-canceling headphones on, eyes glued to a mobile screen, entirely oblivious to the two-ton vehicles just inches away. They have outsourced their survival to the hope that for some reason the world will simply stop for them.

In my decades managing wealth, I have realized that most investors move through the financial markets with that same “head-down” posture. They are navigating their financial lives without looking at the horizon, oblivious to the “traffic” of changing interest rates, shifting growth engines, and the erosion of their purchasing power.

The Questions We Stop Asking

Situational awareness in finance isn’t about predicting the future; it’s about knowing exactly where you stand today. Yet, when I speak to investors, I am often struck by how many have lost track of the basics:
• What is a reasonable investment return in a 4% inflation environment?
• What does a 10-year government bond actually pay you for your risk?
• Is your bank paying you a fair rate on your deposits, or are they quietly benefiting from your inertia?
• How will you achieve your and your family’s investment objectives?

When we lose situational awareness, we become passive participants in our own wealth management. We accept the “default” settings of our local banks or the headlines of the day, failing to notice that the environment around us has shifted fundamentally.

From a Dirt Floor in India to Global Growth

My own sense of financial situational awareness was forged far from the boardrooms of Hong Kong or the trading floors of New York. Shortly after graduating university, I spent time traveling through India, Southeast Asia, and China.

I vividly remember being invited into a basic home in southern India for tea. The floor was hard-packed dirt, but the home was impeccably clean. On a kitchen shelf sat a Coca-Cola bottle, repurposed as a permanent container for vegetable oil. In the markets, every scrap of newspaper was used for packaging. Nothing was wasted; everything was recycled out of necessity and ingenuity.

Even then, the situational cues were everywhere: these were the engines of future economic growth. The sheer density of human ambition, combined with a radical efficiency in resource management, signaled to me a future tectonic shift in the global economy. I realized then that the “surroundings” of a Hong Kong, Canadian or American investor were only one small corner of the woods.

The Hazard of Home Bias

Despite the clear evidence that emerging economies have grown more rapidly than those in North America or Europe over the last several decades, most investors remain “head-down,” focused almost exclusively on the American market.

This is the financial equivalent of walking into a busy intersection while looking at your phone. By ignoring global diversification, investors are failing to recognize the risks of geographic concentration. They are missing the new opportunities of the modern era—the companies and regions that are operating with a growth potential that developed economies struggles to match.

At ChapmanCraig, we advocate for the “Global Store” approach. We don’t just look at what’s happening in our backyard. We look up, we look around, and we assess the global landscape for what it actually is, not what we wish it to be.

Developing Your Financial Intuition

True wealth management requires us to take off the headphones and look at the “traffic” of the global markets. It requires the same rural instinct I felt at the cabin: a constant, quiet assessment of risk and opportunity.

Ask yourself: Are you investing based on where the world was twenty years ago, or are you aware of where the growth is happening today? Are you aware of the “yield” you are leaving on the table by staying in comfortable, local products?

Success in the woods, on the city street, and in the markets depends on the same thing: Keep your head up and your eyes and ears open.

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Active Management Still Has An Important Role – September, 2025

There have been two major developments in financial markets over the past couple of decades that have impacted the average investor: first was the introduction of the index fund and second the introduction of exchange traded funds, otherwise known as ETFs.  These innovations became known as “passive” investing.  In recent years there has been ongoing debate in financial circles between the merits of ‘passive” vs “active” management.

Passive management, through index funds and ETFs, offers investors broad market exposure at relatively low costs, as these funds typically have lower fees and require less frequent trading. This approach aims to replicate the performance of a benchmark index, which can be appealing for those seeking simplicity and steady, long-term returns. However, passive investing does not attempt to outperform the market or respond to changing market conditions, which may limit opportunities during periods of volatility or in inefficient markets.

On the other hand, active management involves a hands-on approach, with portfolio managers making investment decisions based on research, market trends, and economic forecasts. The primary merit of active management is the potential to outperform market indices, especially during periods of market dislocation or in niche sectors where skilled managers can identify undervalued opportunities. While active management may lead to higher returns, it generally comes with higher fees and the risk that the manager may not consistently beat the market. Ultimately, the choice between passive and active management depends on an investor’s goals, risk tolerance, and investment philosophy.

It would be useful to take a step back to view these developments in a larger context of the transition from defined-benefit to defined-contribution saving pension plans.

Historically, many governments and corporations provided defined-benefit pension plans, guaranteeing employees a specific retirement income based on salary and years of service. Over the past several decades, however, there has been a significant transition toward defined-contribution plans where individuals contribute to their own retirement savings and bear the investment risk. Hong Kong was a late adopter with the introduction of the Mandatory Pension Fund (MPF) in 2000, whereas the US established their retirement savings plan in 1978 and Canada introduced theirs in 1957.  This shift has been driven by factors including changing demographics, increased longevity, and the desire of organizations to reduce long-term financial liabilities, fundamentally altering the retirement landscape and placing more responsibility on individuals to manage their financial futures.

In addition to this shift in pension funds, U.S. brokerage commissions were deregulated in 1975 which led to discount brokers to emerge.  Previously brokerage commissions were fixed and high but the lowering of costs spurred competition and innovation in financial products and services, particularly in North America.  Further regulatory changes and tax incentives, along with demographic shifts added to the pace of this evolution.

The introduction in the 1970s of the efficient market theory (EMT), where asset prices supposedly reflect all publicly available information, provided more fuel to the passive vs active management debate.

In the world economy today radical shifts in economic approach by the current US administration will change norms, behaviors of corporations and governments globally.  This will have a strong impact on investors as they navigate these new and unknown waters.

However, let’s go back to last year when we were still the traditional post-war global economic order and the passive vs active management debate centered mostly around the EMT.  Within that context let’s explore why active investment management is as relevant today as ever.

1. Uncovering Nuances and Information Advantages: Deep Sector Expertise

While EMT posits that all publicly available information is instantly incorporated into prices, active managers can still seek to exploit informational advantages through diligent research and analysis. This involves:

• Deep Sector Expertise: Developing specialized knowledge in specific industries or asset classes allows managers to understand complex business models, competitive landscapes, and regulatory environments more thoroughly than the broader market. This deep dive can reveal subtle insights not immediately apparent in headline news or broad market data.

• Proprietary Data and Analysis: Active managers often invest in gathering and analyzing non-traditional data sources, such as alternative datasets, social media sentiment, or expert network consultations. By processing this information through sophisticated analytical tools and proprietary models, they might identify trends or signals before they become widely recognized and priced in.
• Qualitative Analysis and Due Diligence: Beyond quantitative data, active managers conduct in-depth qualitative research, including management team assessments, corporate governance evaluations, and understanding strategic direction. This nuanced understanding can provide a more holistic view of a company’s long-term prospects than purely relying on historical financial data.

2. Exploiting Behavioral Biases:

Even if markets are informationally efficient, they are populated by human investors who are susceptible to behavioral biases. Active managers can potentially generate value by:

• Identifying and Capitalizing on Systematic Errors: Behavioral finance highlights predictable patterns of irrationality in investor behavior, such as herding, anchoring, and loss aversion. Skilled active managers can identify situations where these biases are likely to create temporary mis-pricings and strategically position their portfolios to benefit.
• Providing Emotional Discipline: Market participants often react emotionally to short-term news and volatility, leading to suboptimal investment decisions. Active managers, acting as rational agents, can provide a steady hand, rebalancing portfolios and taking advantage of opportunities created by panic selling or irrational exuberance.

3. Enhancing Portfolio Construction and Risk Management:

Active management extends beyond stock picking to encompass crucial aspects of portfolio construction and risk management:

• Dynamic Asset Allocation: In an efficient market, the optimal asset allocation might still evolve over time due to changing macroeconomic conditions or investor preferences. Active managers can adjust asset class weights strategically based on their evolving outlook and risk tolerance, potentially enhancing risk-adjusted returns.
• Factor Investing and Thematic Allocation: Active managers can construct portfolios based on specific investment factors (e.g., value, growth, momentum, low volatility) or thematic trends (e.g., technological disruption, demographic shifts). While these factors might have long-term risk premia, active implementation allows for dynamic adjustments based on market conditions and factor valuations.

4. Facilitating Market Efficiency and Price Discovery:

Paradoxically, the very existence of active managers contributes to market efficiency:

• Continuous Monitoring and Analysis: Active managers constantly scrutinize companies and markets, seeking information and analyzing potential investment opportunities. This ongoing research and trading activity helps to ensure that new information is quickly disseminated and reflected in asset prices.
• Price Correction Mechanisms: When active managers identify perceived mispricings (even if these are transient or due to behavioral factors), their trading activity can help to correct these anomalies, pushing prices towards their fair value.

5. Providing Tailored Investment Solutions:

Active managers can offer customized investment solutions that cater to the specific needs and constraints of individual investors or institutions:

• Liability-Driven Investing (LDI): For pension funds and insurance companies, active managers can construct portfolios specifically designed to match their long-term liabilities.
• Socially Responsible Investing (SRI) and ESG Integration: Active managers can incorporate ethical, social, and governance factors into their investment process, aligning portfolios with client values while still aiming for competitive returns.

While the efficient market theory presents a significant challenge to traditional active management focused solely on outperforming the market through stock picking, it doesn’t render active managers obsolete. Their roles have evolved to encompass sophisticated information analysis, the exploitation of behavioral biases, proactive risk management, the facilitation of price discovery, and the provision of tailored investment solutions. In a complex and ever-changing world, the nuanced insights and adaptive strategies of skilled active managers can still add considerable value for investors, even within the boundaries of a relatively efficient market.

In conclusion, if active management had an important role to play in the pre-2025 post war global economic order, it is even more vital today we enter a new economic era and American exceptionalism takes on a new meaning.

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Investment Income: Beyond Bonds – August 2025

Last month, we explored what a bond is and why its price changes over time, highlighting how bonds are often a go-to for investors seeking regular income. This month, we would like to expand on that theme by looking at different sources of investment income—a topic that came up recently in a conversation with one of our friends.

Our friend, a retired partner of an international accounting firm, shared a common challenge confronted by many investors: while his investments—primarily in real estate—have performed well in terms of capital appreciation, they don’t generate enough rental income to cover his annual expenses. As a result, he often has to sell assets to generate liquidity, which he then keeps in cash deposits. This is not an uncommon scenario, especially for retirees and other conservative investors who need predictable cash flow.

Bonds: Reliable, But Not Always Enough

As we discussed previously, bonds provide regular interest payments, making them a cornerstone of income-focused portfolios. However, many investors fall into the trap of relying too heavily on the traditional 60/40 portfolio split—60% bonds, 40% equities—especially in retirement. While bonds offer “fixed” income, they often don’t keep pace with inflation, unless they are inflation-linked securities issued globally and by different entities ranging from sovereign to corporate. Historically, U.S. bonds have provided annualized returns of 1.6% over 10 years and 4.1% over 25 years, but of course this figure can vary significantly in interim periods depending on interest rate cycles and inflation.^[1]

A quick aside: The 60/40 split gained prominence in the 1990’s and gained in popularity until it became a de facto “rule of thumb.” The combination historically delivered strong returns with lower risk than an all-equity portfolio, however we believe it is no longer appropriate, and hasn’t been for many years, due to low bond yields and periods of simultaneous stock and bond declines.

Equities: A Source of Growing Income

Although equities can be more volatile than bonds, certain stocks—especially utilities—offer consistent dividends that can serve as a reliable income stream. Regulated electricity and natural gas utilities typically operate in stable environments with predictable cash flows, allowing them to maintain or gradually increase dividend payments over time.  Other industries would include water supply and treatment and telecom infrastructure providers

In a low-interest rate environment, dividend yields from utilities can exceed the returns of government bonds, offering a prudent way to enhance income without taking on significant interest rate risk. Annualized returns for the MSCI World Utilities Index (USD) were 5.72% for 25 years, 7.91% for 10 years, 8.56% for 5 years and 9.12% for 3 years. ^[2]

REITs: Real Estate Income Without the Hassle

Real Estate Investment Trusts (REITs) offer another compelling source of income. REITs own and manage income-generating properties—such as residential buildings, shopping centers, or healthcare facilities—and are required to distribute a large portion of their earnings to shareholders. This structure often results in higher-than-average dividend yields.  Currently the MSCI US REIT Index (USD) has a dividend yield of 4.15% compared to 3.79% for the US 2-year Treasury and 4.33% for the 10-year.^[3]

The Case for a Balanced, Liquid Portfolio

A diversified portfolio that includes dividend-paying equities, REITs, and bonds can provide a steady stream of income while maintaining liquidity. This flexibility is crucial—not just for covering day-to-day expenses, but also for unexpected needs like helping a family member buy their first home, start a business, or replace a car.

[1] Bloomberg US Aggregate Bond Index

[2] MSCI World Utilities Index (USD) Factsheet July31, 2025

[3] MSCI US Reit Index (USD) Factsheet, 31 July 2025/US-Treasury prices approximate as of 22 August 2025

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This article was drafted with the assistance of AI tools and subsequently reviewed and edited by the authors for clarity and relevance.

What is a Bond and Why a Bond’s Price Will Change Over Time – July 2025

In this memo, we discuss the fundamentals of bonds – a cornerstone in many investment portfolios. Bonds are often perceived as less volatile than stocks; however, understanding bonds and their price dynamics is important for making informed investment decisions.

What is a Bond?

At its core, a bond is essentially an IOU issued by a borrower to a lender or investor.  Think of it as a loan you make to an entity, which for our client portfolios would normally be a government (sovereign bond), a government agency (agency bond), or a corporation (corporate bond).  When you buy a bond, you are lending money to the issuer for a specific period, known as the maturity date.

In return for your loan, the issuer promises to pay you two things:

• Regular Interest Payments: These are typically paid semi-annually at a fixed interest rate, known as the coupon rate. This rate is expressed as a percentage of the bond’s face value (also called par value), which is the principal amount the issuer will repay you at maturity.  For example, a bond with a $1,000 face value and a 5% coupon rate will pay $50 of interest per year.
• The Face Value at Maturity:  On the maturity date, the issuer will repay the original principal amount ($1,000 in our example) to whoever is the bondholder at
  that time. You might have sold it to someone else by the time of its maturity.

Why Do Bond Prices Change? The Forces at Play

While the coupon payments are fixed, the price at which a bond trades in the secondary market (after its initial issuance) can fluctuate significantly.  Several key factors drive these price movements:

1. Interest Rate Changes: The most influential factor is the current interest rate for bonds of similar maturity and credit worthiness.  Bond prices have an inverse relationship with prevailing interest rates.

• Rising Interest Rates: If market interest rates rise after a bond is issued, newly issued bonds will need to offer higher coupon rates to attract investors.  Existing bonds with lower coupon rates become less attractive in comparison. Consequently, investors will be willing to pay less for these older bonds, causing their prices to fall.
• Falling Interest Rates: Conversely, if market interest rates decline, existing bonds with higher coupon rates become more desirable. Investors will be willing to pay a premium for these bonds, driving their prices up.

2. Creditworthiness of the Issuer: The perceived risk of the issuer defaulting on its debt obligations significantly impacts bond prices.

• Deteriorating Creditworthiness: If an issuer’s financial health weakens (e.g., a company faces bankruptcy risk or a country’s economy falters), investors will demand a higher return to compensate for the increased risk of not getting their principal back. This increased risk translates to a lower bond price. Credit rating agencies like Moody’s and Standard & Poor’s assess and publish credit ratings to help investors gauge this risk.
• Improving Creditworthiness: Conversely, if an issuer’s financial situation improves, the perceived risk decreases, and investors may be willing to pay more for its bonds, leading to price appreciation.

3. Time to Maturity: The time remaining until a bond matures also affects its price sensitivity to interest rate changes. Generally, longer-term bonds are more sensitive to interest rate fluctuations than shorter-term bonds. This is because  many of the coupon payments and the principal repayment occur further in the future, all of which are discounted back to the present using prevailing interest rates.  A change in interest rates has a larger cumulative effect over a longer period.

4. Inflation Expectations: Inflation erodes the purchasing power of future fixed payments. If investors expect higher inflation, they will demand a higher yield (and thus a lower price) on bonds to compensate for this erosion.

5. Supply and Demand: Like any other asset, the price of a bond is also influenced by the forces of supply and demand in the market. If there’s high demand for a particular bond (perhaps due to its attractive yield or perceived safety), its price will likely increase. Conversely, if there’s a surplus of a particular bond with limited buyers, its price may fall.

In Conclusion:

Understanding that bond prices are not static is essential for investors.  While bonds are often considered a safer asset class than stocks, their prices can and do change in response to a variety of economic and issuer-specific factors.  By understanding these dynamics, you can make more informed decisions to align with your investment goals and risk tolerance.

If you purchase investment grade bonds and have the intention to hold them to maturity, as is the case with most bonds held in our clients’ investment portfolios, then you will receive exactly what you expect over the life of that bond.  The price changes are only a notation in your monthly statements, that reflect the price changes described above, but they will ultimately be paid out at stated maturity and at the face value.  They will have served their purpose to reducing uncertainty of return while providing some return on investment.

Click here to download a PDF version of this article.

This article was drafted with the assistance of AI tools and subsequently reviewed and edited by the authors for clarity and relevance.

First time buyers of Private Equity/Credit, BEWARE!

In working with high-level professionals, retired senior business executives and wealthy families over the years, we have learnt that capital preservation is the most important investment criteria for our clients.  Having gone through many financial crises, the Global Financial Crisis and COVID to mention just two and the internet bubble in the late 90’s, we always guide our clients away from risks we don’t understand.

The race currently on to sell unlisted (private) assets to wealthy individual investors demands reflection. Increasingly banks are announcing tie-ups with alternative asset managers and making plans to make it easier to offer their clients a number of products from private equity, private debt and infrastructure firms. Many of these offerings are untested in volatile markets and many investors don’t understand them.

A few years back we wrote a two-part article addressing Alternative Investments as it was a growing asset class available to investors. In Part 1 and Part 2, our goal was to ensure that our clients were well-informed and had a broad understanding of various alternative investment options, including private equity, private credit, infrastructure, and hedge funds.

We noticed last year that the private equity industry has begun transitioning its primary performance benchmark from Internal Rate of Return (IRR) to Distributions to Paid-In Capital (DPI). This shift reflects growing investor demand for tangible cash returns over projected future gains. The change comes as annualized IRRs dropped below 10% by March 2024—well below the historical 25% target.

DPI figures have also been underwhelming. According to Goldman Sachs, funds launched between 2019 and 2022 returned only about 15 cents per dollar invested, compared to earlier vintages that returned over 50 cents. In response, private equity firms are under increasing pressure to generate liquidity, often by reducing asset prices to facilitate exits and meet investor expectations for near-term cash flow.

In the spring this year we read reports of private equity assets under management (AUM) declined for the first time in decades, according to Bain & Company. AUM fell 2% year-over-year from June 2023, driven by investor hesitation amid a $3 trillion backlog of aging and unsold deals. This capital overhang has led many investors to pause new commitments.

The report also highlights a continued deterioration in liquidity. The proportion of net asset value returned to investors as cash—measured by Distributions to Paid-In Capital (DPI)—has dropped to roughly half its historical average. In 2024, DPI fell to just 11%, marking its lowest level in over a decade.

Bain & Company projects that these challenges are unlikely to ease before 2028, signaling a prolonged period of constrained returns and limited exits.

Back in December Donald Trump nominated cryptocurrency advocate Paul Atkins to chair the US Securities and Futures Commission (SEC).  Earlier this month, he withdrew 14 rules that had not been finalized by the time the previous chairman left the office. These included rules that limited how investment advisors used technology to put their own financial interest ahead of their clients, reduced investor protection and would have required investment advisers to adopt cybersecurity policies and reporting to the SEC.  It is reasonable to expect that new SEC policies will be more favorable for financial institutions and advisors than to investor protection.  Yet another reason for caution.

When combined with considerable economic uncertainty, multi-layers of leverage in the financial system and the rapid development of various speculative digital offerings,  we believe requires extra caution.  We appreciate that returns have been good, even stellar, for short periods for some of these assets, but our clients’ investment objectives tend to be long term and always have capital preservation at the fore.

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Tariffs Simplified – March 2025

Tariffs are simply a levy or tax imposed on imported goods and services.  Tariffs, more often applied to goods than services, would tend to increase the cost of those imported products and thereby reduce the demand for such within that country’s domestic market.

There are three broad rationales for imposing tariffs: to protect local manufacturers or farmers from foreign competition, to generate government revenues, and to punish or extract concessions from another country or countries.

Of all of the policy tools available to an administration to support local industries, tariffs are probably the easiest to explain.  The current U.S. Administration touts this simplicity as a rationale for a focus on tariffs.  A narrative long on “unfair” foreign competition is typically used to justify raising what is effectively raising the prices on imported products (e.g., illegal home-country subsidies, dumping of excess production or lower environmental standards).

However, that simplicity in narrative, belies how complicated it is to predict or estimate a tariff’s ultimate effects – for example, what portion of the tariff is borne by the foreign suppliers, by the local OEMs and the local-end buyers?  Or what are the ultimate impacts on domestic markets, investment in new local productive capacity and evolving supply chain relationships?

Positive Effects of Tariffs on the Protected Country

Historically, a primary reason for imposing tariffs was to protect domestic industries from foreign competition.  A fixation on trade balances were a defining feature of “mercantilist” policies, popular in the 17th and 18th centuries.  In simple terms, tariffs make imported goods more expensive, improving the competitive position of local producers.  If successful, this will increase the domestic industrial base, improving its competitiveness, providing the associated jobs and help build gold reserves.

This protection can be particularly important for nascent or immature industries.  Significant tariff or non-tariff protection provides them the time to grow to a competitive scale, more able to compete with foreign competitors.

Tariffs can also be a source of government revenue. This is particularly true for developing nations lacking an effective income tax regime.

There are fewer historical examples of broad-based tariffs used to punish certain countries.  Targeted measures such as sanctions, quotas or outright bans are usually more effective.  For example, China has made extensive use of non-tariff trade barriers to both grow local industries and to selectively punish countries.

The U.S. Administrations, pretexts aside, clearly see access to their huge domestic consumer base as a benefit that should be used to extract concessions on a wide range of grievances, some unrelated to trade or industrial policy.

Negative Effects of Tariffs on the Protected Country

While tariffs will support the protected domestic industries, they may have negative consequences for the economy as a whole.  Having just been through a period of adjustments, to control higher inflation, markets are sensitive to the possible inflationary impacts of tariffs.  Not only will the cost of imported raw materials, components and finished goods increase, but domestic producers will likely raise prices to maintain profit margins or exploit their newly-found pricing power.  Many companies used the cover of 2022/2023 inflation to increase their profit margin through above-inflation price increases.  This particular effect would be inflationary and impact households on already stretched budgets.

A domestic producer that imports materials or components and exports finished products may find itself less competitive in important export markets.  Additionally, small businesses may struggle to absorb the additional costs of tariffs, since they likely have fewer options to reconfigure already fragile supply chains.

Producer countries would likely respond with “retaliatory” tariffs.  This would its own demand shock, and further disrupt global supply chains, reducing efficiencies.  In addition, if these dynamics reduce business or consumer sentiments, businesses might delay or reduce capital investments, leading to broadly lower economic output.

Negative Effects of Tariffs on the Exporting Country

While the impact on exporting countries will almost certainly be negative, the extent of that harm is very difficult to predict.  Nothing is static in trade economics.  Exporters will look for new markets, importers will adjust away from products with tariffs attached, governments will adjust policies and similar broad economic impacts as described above will also impact the producer country as retaliatory tariffs are applied.

The impact will ultimately depend upon things like the absolute rate of the tariffs, the range of goods they hit, the length of time they are imposed, the options that exist to re-route supply chains or change trading partners, and the extent to which excess capacity for comparably priced goods exists in the protected country.

These complexities are highlighted by the Governor of the Bank of Canada in a recent speech during which he discussed the U.S. Administration’s tariff threats, available at https://www.bankofcanada.ca/2025/02/speech-tiff-macklem-february-21-2025/

Possible adjusting mechanisms within the producer country, including fiscal or monetary policy adjustments is discussed by Letko Brosseau & Assoc. in a recent note: https://www.lba.ca/perspective/us-tariffs-on-canadian-trade/

Whether retaliatory tariffs will be effective as punishment or an inducement will depend in part on the relevant impact that trade has on each country’s economy as well as the size of the trade imbalance.  The United States would experience a lower economic contraction as a result of a trade war than would most of its trading partners, simply because trade represents a lower proportion of its economy.

Summary

Tariffs have both positive and negative effects on the country applying tariffs.  While tariffs may protect targeted local producers, there are other effects, especially if other countries retaliate, that combine to make it difficult to predict the ultimate economic benefits.

If the purpose is to raise revenue, you don’t want import volumes to decline.  If you are trying to protect jobs or reshore manufacturing, then you want to essentially block imports.  If you are punishing, then you want a scalpel.

The effect of tariffs on the producer country, while mostly negative, can also be difficult to predict because much depends upon post-tariff adjustments, retaliatory response and nature of the tariffs.

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Financial Literacy Introduction – September 2024

Money.  Almost everybody values it, but not everybody understands it.

A number of years ago, some of our clients suggested that we give talks to professional groups about investing.  We developed an hour-long presentation to lawyers, specifically those working with private clients receiving financial settlements.

Many of their private clients lack prior experience with financial planning, particularly around investment decisions.  This lack of experience could leave the client vulnerable to inappropriate investment advice or result in poor decision-making, or with the additional stress, cause the client to avoid or defer important decisions.  This can be true whether the settlement comes results from a personal injury, a divorce, the sale of a business or an inheritance.

Being financially literate is important for these professionals to assist their clients.  But it is equally important for individuals, who might find themselves in similar situations or upon a spouse passing away and suddenly being responsible for managing their personal finances.

What do we mean by financial literacy?

For our purposes, financial literacy is the ability to understand basic financial concepts required to attain their financial objectives.  Often, those objectives are preserving and growing wealth while assuring a sustainable, regular income from that wealth over the longer term, e.g., 20-30 years.

Understanding and determining your own financial objectives is the foundation of implementing responsible and successful investing.

Wealth preservation sounds simple enough.  It means not sustaining a permanent loss of a meaningful portion of your wealth.  This should not be confused with the normal fluctuations of asset valuations, which we witness in stock markets.

Growing wealth results from a savings program as well as earning a positive return, over an extended period, on the assets that you own.  This period should be measured in years or even decades, not months and quarters.

Investment objectives are dynamic and are likely to evolve over time and with significant changes to personal circumstances.  At some point(s) in everyone’s life, they will require income generated by their investments.  Traditionally, this happens when people retire from their work, and they no longer receive a regular salary. Some people will continue to enjoy pension income related to their prior employment or from government-maintained social security regimes.

With respect to company-based pensions, there has been an evolution away from defined benefit plans to defined contribution plans in recent decades. There has also been increased availability in many countries of “regulated” accounts that provide tax benefits upon contribution but over which employee would make investment decisions – including the decision to allow a professional advisor to manage it.

The financial services industry has developed a myriad of new and innovative investment products and services, trading platforms, targeted at both evolving institutional interests and individual investors managing their own investments.

Without question, assessing what is an appropriate platform or are appropriate investment securities has become a much more challenging part of many individual investor’s decision-making.  We do not believe that one must become acquainted with the majority of the financial products available to meet a basic test of financial literacy; however, exposure to the basic building blocks of a wealth-building investment plan is probably necessary.

Why is financial literacy important?

First, it will greatly assist in describing one’s financial objectives.  Meeting those financial objectives will require thinking about when income will be required and the size and sustainability of that income.

Second, it provides a foundation for necessary estate planning and addressing certain risks.

Finally, it provides peace of mind.

There are a number of basic concepts to understand as one becomes more financially literate.  Many private banks and family offices provide financial literacy education and guidance to the children of their wealthy clients.  But it is a subject that is important to everyone who is or will become responsible for their own financial decision-making.

These concepts include: asset allocation (including diversification principles), risk management, budgeting and financial planning, including an understanding of your sources of income and short-term liquidity.

As someone becomes more involved in their financial planning and investment horizons, they may start to consider concepts such as ESG priorities (environmental, social and governance-related), more sophisticated risk management approaches and evolving products that provide access to alternative asset classes that were previously only available to large institutions.

We will expand on each and provide practical illustrations or examples.

Just as reading and writing in our native language is a benchmark of general literacy, minimal financial literacy should be encouraged for everyone in a modern economy.

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