How Russia Invading the Ukraine could Impact Your Portfolio

In recent months, the escalation of geopolitical threats (such as Russia invading the Ukraine, China threatening Taiwan, and the Iranian nuclear deal) may seem like an ominous cloud that is doomed to negatively impact stock market returns. In times like these, we at Financial Alternatives want to remind our clients that one of the most important factors of investment success is the ability to take a long-term approach.

Markets tend to recover in the long term

We want to share with you a piece of research we came across outlining major geopolitical events and their subsequent impact on S&P 500 returns. As you will note, more often than not, a turbulent political event will recover quickly and can even provide investors with an immediate investment opportunity.

In all but two of the events described below (Iraq’s Invasion of Kuwait and the Pearl Harbor Attack) the S&P 500 had recovered in less than 3 months, with many of the events seeing a full recovery over the following days and weeks after an event.

Link to Graph is here.

It is important to note that these recoveries are measured against the S&P 500 which is a diversified basket of the largest 500 companies and may not be reflective of individual stocks or specific stock sectors.

Actions you can take to protect your investments

There is no magic one-size-fits-all panacea for insulating your wealth from geopolitical threats such as Russia invading the Ukraine, etc. The approach we recommend is, as hard as it can be at times, to remember that proper diversification is the best defense. Not putting your eggs in one basket is important for risk management.

It’s also critical to make sure that your portfolio is managed in accordance with the proper risk tolerance. This is determined at relationship onset, and revisited by your financial advisor through the relationship. If life changes occur, it’s important to discuss them with your financial professional so that your risk tolerance measurement and portfolio may be adjusted.

Geopolitical events such as the Russian invasion are only one type of risk that your portfolio faces. Risk is always changing, and requires constant monitoring.

If you are interested in building a long-term diversified portfolio that can help you weather volatile geopolitical events, we encourage you to reach out to our team and schedule an appointment to discuss how we can help work with you to design your financial future.

CONTRIBUTOR

Andrew Hoffarth, CFP® is a Lead Advisor with Financial Alternatives. When he’s not enjoying outdoor activities with his family, he excels at finding solutions for complex financial situations, allowing successful families to focus on what is most important to them. Schedule a time to chat with Andrew

Disclaimers

The statements made in this article are general in nature and cannot be construed as investment advice. Nothing in this article should be interpreted to be a recommendation specific to your situation; the information contained herein is general in nature. For tax, investment, or financial advisor, consult a professional advisor.