Financial markets do not like uncertainty. Having struggled with an unfamiliar pandemic over the last couple of years, followed by a resurgence of inflation and now a hawkish Federal Reserve likely on the verge of hiking interest rates in March, investors are increasingly on edge over what a Russian invasion of Ukraine means to them and their portfolios. Unlike the first two considerations, we think the economic fallout from Russia’s decision to invade a sovereign country should be relatively contained, apart from higher energy prices which are likely to remain elevated in the short run (Russia’s economy is not even among the world’s 10 largest and encompasses just 1.8% of global GDP with Ukraine much less than that.) According to recent news reports, neither the U.S. nor NATO member nations are expected to involve troops at this point.
Beginning last month, the JNBA Investment Committee has shifted portfolios to become slightly more defensive, and at this time we feel that our positioning is appropriate for the uncertainty that remains. Our broad diversification, with allocations to bonds and inflation hedges – including commodity stocks and gold – should work to our advantage in times like this. We think investors would be wise to avoid succumbing to the urge to make any hasty adjustments to their portfolio strategy at this point, particularly as markets have already corrected to a large extent and have a way of rallying when sentiment moves from “negative” to simply “less worse.”
It is important to remember that your financial plan is built to withstand market turbulence that oftentimes seems like an unpredictable jolt from out of the blue. As shown in the chart below, the S&P 500 trajectory around past domestic, political, and geopolitical risks and events has been of sharp, short-lived selloffs with the economic context eventually dominating. Although the news around Russia and Ukraine will obviously fill the short-term headlines, we do not believe the longer-term direction of the market will be fundamentally altered by this one event. As always, we welcome any questions or concerns you might have as your trusted financial advocate.
Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from JNBA Financial Advisors, LLC.
Please see important disclosure information at www.jnba.com/disclosure.