Anytime a geopolitical situation erupts in gunfire, it is very troubling. It remains a scary concept even in the 21st century. As a result of Russia invading Ukraine, human lives will be both lost and severely impacted.
The timing of the current conflict in eastern Europe comes on the heels of an especially calm period in global relations, which has only magnified the effects of the invasion.
So, what does this mean for investors? Not as much as most people might think.
- The U.S. economy is in an expansionary phase following the Covid 19 pandemic. It is D’Arcy Capital’s opinion that this will not be derailed because of the Russian/Ukrainian conflict.
- The U.S. economy is facing inflation, rising interest rates, a workforce shortage, and supply constraints. This is not an environment that should be slowed by a localized conflict in Europe.
- Conflicts, like this Russian/Ukrainian event, have existed since the beginning of time. This is nothing new for long-term investors or the stock market. It will create some hurdles but should create many more opportunities. Investors should not view it as unpresented.
So, why is the stock market declining so much as the Russian/Ukrainian situation unfolds?
- It is scary. When people are scared, they often panic. This finds its way into the stock market in the form of a sell-off. Inexperienced investors feel more comfortable selling their investments and holding cash.
- There is an impact from the escalating conflict. Higher oil prices will exist as the world avoids Russian sourced oil. However, this effect should be short-term. The U.S. has ample access to energy.
- Investors often have one response to any negative global-economic event – sell stocks and go to cash. Potential recession – sell stocks and go to cash. Potential for inflation – sell stocks and go to cash. Increasing interest rates – sell stocks and go to cash. International conflicts – sell stocks and go to cash. Disagree with who has been elected to pollical offices – sell stocks and go to cash. This response is not conducive to successful investing. What worked during the great recession will not work today. Selling stocks and going to cash is exactly the opposite of what investors should do with a growing economy, excessive inflation, and escalating tensions in eastern Europe.
So, what should I do?
- The first thing (which should have been done prior to Russian/Ukrainian eruption) is to have a specific plan or a strategy and stick to it. Make sure your portfolio is diversified. Although, high oil prices may impact part of your portfolio, other areas of your portfolio will see growth. Even now, it is not too late to re-allocate your portfolio.
- Understand the threat to your investments. Can you draw a logical connection between what is unfolding on the Russian border and the stocks you hold in your fund or account? If not, you should not make any changes.
- Be patient – war is bad and seems more archaic than ever. It will be resolved, and the economy will continue to grow. There will always be something to worry investors. Successful investing requires not acting on worry.
- When stocks fall on fear or panic, it means a buying opportunity exists. Use this time to add to your portfolio and take advantage of the indiscriminate selling.
- Investors should reduce the amount of time spent following the Russian/Ukrainian conflict on television, online, or social media.