It feels like the world is a very uncertain place to be right now.
First off, I’d just like to say that our thoughts and prayers are with everyone in Ukraine right now. Although we talk about financial impacts below, the human tragedy and destruction is the by far the worst aspect of this. Here’s hoping for a swift and peaceful resolution.
With Russia invading Ukraine, sanctions being launched and the threat of nuclear weapons, you’d be forgiven for feeling a little unsure right now.
After a few years living with Covid, 2022 has seen a spike in inflation, central banks have started to raise interest rates, there have been wobbles in the bond market and global stock markets have had a difficult opening to the year. The invasion of Ukraine adds yet another variable to the mix.
But what does this all mean? Will it lead to a global recession? The honest answer is, no-one knows. So let’s focus on what we do know…
- If your goals haven’t changed, neither will your investment strategy. When we design our clients investment strategies, we design them to be successful over the long-term. This naturally factors in good and bad periods of time. We also model the effect of large drops in the stock market on our clients’ financial futures to stress test the plan. Focus on the long-term.
- Markets will almost certainly be more volatile as emotions affect investor behavior. We may well see large swings in either direction. There is no way to know which way the markets will go; as such, it makes no sense to try to jump in and out of the markets. Various studies have shown this to be one of the biggest destroyers of returns for investors.
- Focus on what you can control. Let go of things you can’t control, like the direction the stock market moves. Focus on what you can control such as spending, saving and sticking with your investment strategy.
- There is no ‘safe haven’ to place assets. Anything held in cash would be deteriorating in buying power due to high inflation and low interest rates. The best defense is to have your emergency fund and short-term capital needs in cash, and your long-term money invested in a well constructed investment portfolio that is designed to weather the storm.
- Your portfolio is diversified. When you read about how much the markets have dropped, that isn’t your portfolio. Our clients have globally diversified portfolios that include exposure to bonds as well as global stock markets. It’s at times like these that the defensive bond holdings reduce the impact of stock market falls. As an aside, Russian stocks represent a tiny portion of the global economy. As our portfolio’s are heavily diversified across the globe, any exposure to Russian stocks is incredibly small.
- This is normal. Unfortunately it’s part of investing. In order to get a long-term return in investing, you have to take risk. Part of that risk is being able to stomach the short term dips.
It’s important to remember that we cannot control other people’s actions or decision making. As such, fear of an unknown future that we have no control over isn’t a productive way to make decisions. Rather we should concentrate on the life we want to live and ensure your finances are aligned with that life.
Stay the course and keep making decisions with your future life in mind, rather than world events. If you feel in need of a chat, please do get in contact.
Note: The reason for the picture is that the sunflower is the national flower of Ukraine.
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