With a lot of market volatility and uncertainty from the ongoing Russia-Ukraine crisis, it’s easy to make negative market speculations. We have noticed financial setbacks from the shift of investor sentiments. However, there has been a truthful perspective to ease existing tensions and practical advice to follow.
Analyzing trends from previous geopolitical conflicts, one can see that the impact is not long-lasting. As a result, markets have shown resilience. Within this conflict especially, it is not likely there will be significant long-term impacts in emerging-markets holdings. This is because Russian stocks only account for around 2.9% of the emerging-markets basket, which does not represent a meaningful exposure to the broader emerging-market basket. On the other hand, Russian stocks alone are extremely risky and prohibition of these could be a possibility.
It is important to assess and understand potential long-term market implications – both those that are clear and those that are less obvious. A crucial perspective is to avoid negative prediction and focus on potential implications across assets. The best advice for a long-term investor is to stay invested and not panic. Prioritize goal-based investing, therefore keeping focus on the long-term perspective. To do so, you must stay updated with drastic changes, especially since volatility can uncover potentially significant investment opportunities.
Elon Musk and Jeff Bezos have recommended similar strategies during this time. Specifically, Musk claims that rather than keeping your money in cash, owning physical things like a home or stock is better in times of high inflation. Another benefit they agreed upon is having ownership in a business. This protects your investments from inflation because if you are invested in a good company, the demand for their products will likely not go down.
While cash is suffering due to inflation, investments generally grow over time. The advice here is to stay invested in strong companies with stock consistency and do not sit on too much cash. However, stock picking will always be risky so diversify your assets accordingly. Another piece of advice is to take advantage of market growth by investing in low-cost index funds because these are less volatile. In fact, the S&P 500 has outpaced inflation over the years. Rebalancing of your asset allocation is also a useful strategy for goal orientation.
For fixed-income investors, potential benefits could be realized depending on the action taken by the central banks. If any hits are taken, fixed-income investments can benefit from reinvestment of coupons at higher rates in the new higher-yield regime.
In uncertain times like this, it’s important to not lose perspective of your long-term goals. Look at your investments from an extended perspective and don’t forget to speak with a financial advisor for any further information or advice.