The Russian invasion of Ukraine wreaked havoc on the global markets. Without belittling the pain of those directly hurt by military action and seeking refuge, those of us in safety are left wondering how this crisis might impact our investing.
While Russia takes up great swarths of land, its economy accounts for a small fraction of the world’s global output. Nevertheless, the domino effect of uncertainty, economic sanctions, and inability to make financial transactions impacts the entire world. Today’s situation is erratic and unpredictable.
While it may be tempting to sell out of the market, frequent trading may not be the best way to meet your long-term financial goals.
Lather. Rinse. Repeat… May be good instructions for washing your hair but not your investments.
An important rule of thumb to remember before you make changes to your portfolio is that money is like bar soap: the more you touch it, the smaller it gets. Additionally, if you are an American citizen, the short-term capital gains created by frequent trading are taxed at higher rates than long-term gains.
Let’s be clear: I’m not advocating never adjusting your portfolio or holding on blindly to investments. I’m advocating sticking to a well-made financial plan that diversifies your long-term investments according to your risk tolerance. A well-diversified portfolio may be more important than timing the market in times of crisis.
Though past performance can’t guarantee future results, the stock market traditionally recovers from global crisis. One year after Pearl Harbor the S&P was up 4.3%, a year after Iraq invaded Kuwait, it was up 10%, and one year after Russia annexed Crimea it jumped 14.7% (Click here for source)
If you still believe in the fundamentals of the companies you invest in, and are optimistic that the future looks brighter than the present, then remaining invested for the long- term may be a good move. Indeed, if you can tolerate additional volatility, now might be the time to buy more stocks… but consult with an investment professional before making any moves. Just because the Russian invasion is wreaking havoc in the short term, if you are optimistic it will end and the countries will be able to rebuild, then you might want to continue to remain invested.
For more information on how to invest when you can’t predict market direction, go to Profile-Financial.com/market-direction
Published March 31, 2022.