On Wednesday night, Russian Federation President Vladimir Putin followed through on his threat to invade his neighbor, the sovereign nation of Ukraine. It is difficult to know his actual motivations and what his plan is. But this is obviously an affront to the post-WW War II international order. And a tragedy for the Ukrainian people.
I’ve mentioned before my growing affection for the Visual Capitalist website, and they have produced great visual explanation of the fascinating history and current events of Ukraine, a country of 44 million people.
Portfolio Management Implications
Geopolitical events move markets. Especially wars. Stoked by the financial media, some investors get scared and often “go to cash” – selling in a panic without considering the long-term implications. On the other hand, NM Rothschild, of the famous European banking family, is apocryphally believed to have said during the 18th Century Napoleonic Wars: Buy to the sound of cannons, sell to the sound of trumpets.
The leadup to the invasion has been at least partially responsible for the market to drop by around 10% already this year. Then, when I started to write this note on Thursday morning, the Dow was down nearly 3%. But as I was finishing, the S&P 500 closed up 1.5%. And maybe I should just stop right here. But no, I think I should make the point I was going to make anyway. This war is not going to be over anytime soon and there will be darker days ahead. Exogenous events, like the beginnings of the Covid pandemic in February of 2020, occur from time to time and the investment lessons are timeless.
We Are Prepared for This
Nobody knows how this crisis is going to develop and what its impacts on the markets will be. Nobody. It’s impossible to time the market, especially after the initial shocks take their toll. And even if you got lucky on the way down, you’d have to be right again with good timing on when to get back in.
We know these shocks are going to take place and work hard in advance to build into our portfolios the ability for patient investors to ride out these storms.
Control what you can control. Geopolitical events and their effects on the market are out of our control. Making portfolio changes in response to these events or market moves only gives us the illusion of control. But we do have control over many important aspects of our planning: how much you save and spend, the assessment of your time horizon and the appropriate asset allocation between the risky and less risky assets that will allow you to both achieve your financial goals and to sleep at night.
Take care of yourself. Helplessly watching this tragedy unfold on television makes you want to do something. The best thing to do is turn off the TV, leave your phone at home and go take a long walk with a loved one. You may be tempted to tinker with your portfolio. But in times like these, my idol, the late Jack Bogle, would scream: Don’t just do something. Stand there!