World Events and Your Portfolio: Where Should You Focus?
Updated: Mar 15
As we mentioned in last week’s article, geopolitical events can have a dramatic effect on the financial markets. We saw this demonstrated again during the past week, as the looming threat that Russian has been imposing on Ukraine came to disastrous fruition with Russian tanks, troops, and aircraft launching attacks throughout the nation of Ukraine. For the second time since 2014, Russia is using its army to seize territory in blatant disregard of international norms or, it should be said, human life.
The human cost—in lives lost, damage to the economy of a sovereign nation, and disruption to the world order—is awful to contemplate. And for American investors, it has been disturbing to watch the financial markets, both at home and abroad, react to these disturbing events with wide swings in volatility. There will also be no small discomfort for Russian citizens. The U.S., and European governments and Japan are escalating their sanctions against the Russian economy, which will effectively isolate the country from the global banking system and obstruct or shut off many opportunities for trade. Germany has canceled the Nord Stream 2 pipeline that was to have bypassed Ukraine to deliver Russian natural gas directly to European consumers, which represents a huge financial blow to the aggressor nation. Meanwhile, most of us are not hearing other news that has more positive implications, such as the fact that earnings for companies in the S&P 500, in aggregate, rose 22% last quarter, or that overall economic growth in the US continues to be unusually robust.
Whenever there is war anywhere on the planet, it is natural to feel uncertainty at the least, fear at the worst. We cannot sugarcoat the fact that this aggression will heighten political tensions in Europe and around the world, and we can expect a parade of the kind of unsettling images that wars produce in abundance.
The investment implications of all this are uncertain—but, of course, that is true at literally every moment in time; none of us can see the future, and we especially cannot see how the markets will respond to any particular event. There is an interesting phrase on Wall Street, that “the smart money” is betting on this or that outcome. But the truth is that the smartest investors—those who have enjoyed the best long-term outcomes—don’t bet at all. They understand that nothing that happens along the Ukraine border will change the underlying value of US stocks.
There are two ways to lose money in the markets. The first is to harvest losses in stocks, funds, or ETFs for tax purposes, which often leads to re-investment once the tax benefits have been reaped. The other is to sell when the markets are dropping, which transforms paper losses into tangible ones. In past downturns, many people locked in their losses while long-term investors ignored the random white noise of market ups and downs, rode out the declines, and never experienced any loss at all.
We can and should pray for the people who are suffering the impact of military aggression, and we can hope and expect that our world leaders will successfully navigate this crisis as they have so many others. What we can’t do is predict how the markets will behave in the next few weeks or months—taking some small comfort in the fact that nobody else can, either.
At Bernhardt Wealth Management, we provide coaching and guidance aimed at forming disciplined investors who focus on what they can control: maintaining proper diversification and allocating assets according to their established strategy and risk tolerance. We believe that over time, the financial markets will exhibit the resilience they have demonstrated for decades. In other words, in this crisis as in others, patient, disciplined investors can expect to be rewarded by favorable long-term results.
To learn more about how tuning out the “noise” in the financial news can help you achieve better investment returns, click here to read our article, “Who Should You Listen To? Market Predictions and the Individual Investor.” And if we can provide more information or guidance, please click here to contact us.