Protecting Your Portfolio From Market Reaction To Russian Aggression

Friday, March 18, 2022

​​March 17, 2022 By Susan Kaplan

Markets have been shaken lately, and investors both big and small are searching for direction and strategies to protect their portfolios. Early 2022 already recorded the highest inflation rate in 40 years, and the Federal Reserve has just lifted its key interest rate by a quarter of a percentage point on Wednesday, their first decisive step toward trying to tame rapid inflation by cooling the economy. Expect six more similarly sized increases over the course of 2022. Add to that the fact that big stock declines have already begun to drag down the market, and now the Russian invasion of the Ukraine has created a geopolitical crisis which has sent stocks tumbling even further. The S&P 500 continues to take a beating as investors watch Western sanctions against Russia damage global trade.

  • The Positive Side: The labor market and economy appear strong enough to handle higher interest rates. Experts do not anticipate a recession this year. However, mortgages, car loans and borrowing by businesses will be more expensive, but slowing consumption and investment will reduce demand and suppress surging prices.

  • The Negative Side: The ban on Russian oil exports could continue to push oil prices higher per barrel driving inflation a bit higher, for a bit longer than pre-invasion forecasts. The big picture is little changed. But American and European companies that have a significant presence in Russia will be hard hit. Emerging markets funds with disproportionate exposure to Russian stocks have already declined sharply.

  • The Opportunity: Gold prices hit $2,000 an ounce after investors flocked to the safe-haven asset after the Ukraine crisis worsened. Gold is coming back into its own with new all-time highs in prices.

  • The Disappointment: The Bitcoin and crypto slide proved digital currency is not the new “safe-haven.” Cryptos have not displayed any signs of being a store of value during the current geo-political and economic crisis.

  • The Outlook: A well- diversified portfolio of stocks and high-quality bonds will weather crises like the war in Ukraine, whether held directly or through low-cost mutual funds and ETFs. Defense contractors, gold, oil and gas stocks, cybersecurity companies, are expected to survive supply chain disruptions. Compared to Europe, the US is relatively insulated, and history shows geopolitical catastrophes such as the one between Russia and Ukraine can temporarily disrupt markets and increase volatility, but they don’t typically have long-term consequences for investors. Investors should stay calm and focus on their long-term plans. If your investing strategy is sound, it probably shouldn’t change.

REACH OUT TO US: Investors might be tempted to overreact and sell their investments, but any knee-jerk reaction you have to the situation is more likely to hurt you, rather than staying the course. If you are uncomfortable with the amount of risk and volatility rate in your portfolio, come speak with us about a free risk assessment and portfolio analysis. We are here to assist you in making informed decisions.