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What Should You Do About the Russia–Ukraine Crisis and Market Volatility?

What Should You Do About the Russia–Ukraine Crisis and Market Volatility?

March 17, 2022
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The events of the last few weeks in Ukraine have been stressful and upsetting to many of us. The buildup of Russian forces along the border, rising tensions, and the ensuing attack have caused worldwide shockwaves. People across the globe are understandably concerned and anxious. 

What’s more, the events have caused economic volatility across the world, with Russia’s currency dropping to historic lows against the dollar and the Russian stock market issuing an emergency closure. (1) On February 24th, the European Stock Market Volatility Index, which measures the expectation of volatility over the next 30 days, neared a 20-year high. (2)

While hopes are high for talks aimed at deescalating the crisis, the financial implications may be considerable. Tough financial sanctions aimed at Russia could lead to an increase in retaliatory cyberattacks. In addition to the conflict in Ukraine, our economy is facing high inflation and continued uncertainty about COVID variants. 

Financial Markets and Geopolitical Events

Events around the world can quickly shock financial markets, but the reality is that markets often tend to recover rather quickly from external shocks. In fact, since World War II, stock markets typically rebounded within 3 months of a large geopolitical shock. The average time for markets to rebound after major geopolitical shocks is around 47 days. (3) In fact, the U.S. stock market regained losses within 30 days of the September 11th attacks. (4)

Take a look at the following chart to see how stocks typically recover following geopolitical crises: (5)

What to Do During Market Declines

While market declines can be scary, especially for those within retirement, the reality is that these declines often create valuable opportunities. Short-term price drops for companies with excellent long-term value offer a great chance to invest or rebalance. Because markets are prone to quickly recover after geopolitical shocks, it’s critical not to sell during short-term downturns.

Stay Calm

While the current conflict is stressful to many, your long-term investment plan should not be a source of fear. At times like these, it’s important to put current conditions into perspective. This is not the first time the market has taken a tumble and it won’t be the last. Declines in the Dow Jones Industrial Average are actually fairly regular events. In fact, drops of 10% or more happen about once a year on average: (6)

Play Dead

There’s an old saying that the best thing to do when you meet a bear market is the same as if you were to meet a bear in the woods: play dead. While easier said than done, successful long-term investors know that it’s important to stay calm during a market decline.

Market volatility has increased in recent years and it may seem like each episode is worse than the one before. In reality, volatility does not hurt investors, but selling when the market is down will lock in losses.

Remember That Your Portfolio Is Diversified

Fears about war and market declines are stressful. However, it is important to keep in mind that while the stock market is down, your portfolio is made up of both stocks, bonds, and other assets that are designed to work together to decrease overall losses. It’s important to consider your specific portfolio, investment horizon, and circumstances when reflecting on economic events. If you have questions about your portfolio, get in touch with our office.

Review Your 401(k) and Other Accounts

Now is a good time to take a look at all of your investment accounts, including your 401(k) to make sure it is well diversified. If you have not rebalanced your other investment accounts in the last year, get in touch with our office and we’ll take a look and offer recommendations to minimize potential losses.

Speak With Your Advisor

Whether you’re new to investing or an experienced investor, it’s helpful to consult with an objective third party. Human nature causes us all to act out of emotion when our accounts go down. As an independent firm, we put your best interests first. We seek to serve as a support system for our clients, helping them make informed financial decisions that aren’t driven solely by emotion.

We’re Here for Your Friends and Family

If you have friends or family who need help with their investments, we are happy to offer a complimentary portfolio review and recommendations. We can discuss what is appropriate for their immediate needs and long-term objectives. Sometimes simply speaking with a financial advisor may help investors feel more confident and less concerned with the day-to-day market activity. Reach out to us at 970-249-9882 or email info@wealthwithapurpose.com to get started. 

About Michael

Michael Murphy is an associate wealth advisor at Colorado West Investments Inc., a wealth management firm committed to providing exceptional, comprehensive financial services to highnet-worth individuals, business owners, and retirees. Michael is known for building strong relationships with his clients, helping them clarify their goals and values, and partnering with them to design a financial road map that will help them work toward their ideal life. He is passionate about walking his clients through the financial planning process and seeing the confidence and relief on his clients’ faces as a result. Michael has a bachelor’s degree in finance from the University of Northern Colorado and an MBA from the University of Colorado Denver. When he’s not in the office, you can find him outside, likely hiking or mountain biking, or digging into a book. Michael and his wife, Becca, have 6 dogs at home. Becca runs a dog training and boarding facility. To learn more about Michael, connect with him onLinkedIn.

*Advisors associated with Colorado West Investments, Inc. may be either (1) registered representatives with, and securities offered through LPL Financial, MemberFINRA/SIPC, and investment advisor representatives of Colorado West Investments, Inc. or (2) solely investment advisor representatives of Colorado West Investments Inc., and not affiliated with LPL Financial. Investment advice offered through Colorado West Investments Inc., a registered investment advisor and separate entity from LPL Financial.  

Investing involves risk including loss of principal. No strategy assures success or protects against loss.  Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss. All performance referenced is historical and is no guarantee of future results. This material was created for educational and informational purposes only and is not intended as tax or legal advice. You should consult with your attorney or tax advisor for guidance on your specific situation. LPL Financial does not provide tax or legal advice.

This material was prepared for Michael Murphy’s use.

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(1) https://www.cnn.com/2022/02/28/business/russia-ruble-banks-sanctions/index.html

(2) https://www.cnbc.com/2022/02/23/stock-futures-are-little-changed-after-dow-sinks-to-its-lowest-level-of-the-year-amid-ukraine-crisis.html

(3) https://seekingalpha.com/article/4488660-how-stock-market-reacts-war-based-crash

(4) https://www.forbes.com/sites/jonathanponciano/2022/02/24/russian-invasion-triggers-scary-stock-market-correction-heres-how-long-stocks-take-to-recover-after-geopolitical-shocks/?sh=1e090de224ed

(5) https://www.reuters.com/markets/asia/live-markets-what-history-says-about-geopolitics-market-2022-02-18/

(6) https://www.capitalgroup.com/individual/planning/market-fluctuations/past-market-declines.html