In today’s globalized world, geopolitical actions have far-reaching consequences. After an unprecedented, modern-day pandemic, just as the world began to finally catch a break, the Russia-Ukraine crisis has dented the hopes of a quick recovery. Besides the deplorable bloodshed and human affliction, there are also strong financial ramifications to reckon with. Immediately after Russia launched the invasion, S&P 500 plunged to a nine-month low, undoing a considerable amount of post-pandemic recovery. For those who had to bear the brunt of the prolonged pandemic-induced downturn, this is definitely a cause for concern. Inflation is expected to surge further, equity markets are set to stay volatile, and interest rates could soon increase, all providing little in the way of optimism. However, this situation calls for anything but panic. Here are five wealth management tips amid the Russia-Ukraine crisis.
Every crisis creates opportunities
From a strictly financial standpoint, every crisis has accompanied a fair share of challenges as well as opportunities. While many asset classes have incurred losses, there is also a buying opportunity for those with excess liquidity. In fact, those who harbour a buy-on-dip strategy are investing in stocks, hoping to capitalize on future gains. This strategy is predicated on the idea that, unlike the pandemic situation, the Russia-Ukraine crisis may not drag on for long. Several stocks have indeed rallied in the past few weeks as part of the larger post-pandemic recovery. However, these developments should not encourage ill-advised buying. It is advisable to do your due diligence and time the market before splurging the cash.
Eyes on the prize
Volatilities are an inherent aspect of financial markets. Since markets are largely sentiment-driven, when securities are oversold or overbought, they are bound to cause volatilities. The knock-on impact of the Russia-Ukraine conflict on global financial markets was short-lived, with securities gradually posting recovery since the invasion started. The idea, therefore, is to create a robust, long-term financial plan and commit to it. It’s important to leave the emotion out of investing and develop a wait-and-watch approach. Such a big-picture vision could make you impervious to short-term fluctuations like the Russia-Ukraine conflict is expected to be. Even in the event of a prolongation, there is so much to gain in the end. Remember, patience is a virtue that always pays off.
Keeping eggs in different baskets
The Russia-Ukraine conflict, which is arguably one of the worst crises since World War 2, definitely calls for a portfolio rebalancing based on a fresh risk-return analysis. It’s important to factor in the event-specific risks on asset classes. You can subsequently undertake risk distribution, by diversifying across asset classes, industries, and regions. Needless to say, it is advisable to reduce exposure to Russia or Ukraine-linked assets. Also, one can resort to dynamic allocation, frequently adjusting investments as per market conditions. Even bonds, which tend to have low yields, are now making a compelling case for investment, with the 10-year US treasury yield recently hitting 3% for the first time since 2018. So, irrespective of potential gains, it is advisable to ensure all your eggs are in different baskets.
The charm of commodities
Traditionally, hedging is synonymous with gold and other bullion. Rightly so, precious metals continue to be the best instruments to safeguard value. At the same time, consideration can also be given to commodities like oilseed, corn, wheat, minerals, etc., whose supply is under duress due to the ongoing conflict. Both Russia and Ukraine are well integrated into the global natural gas, oilseed, and minerals value chain. So, the disruptions and supply issues mean that such commodities will offer high returns as demand increases. With economic sanctions and re-evaluation of supply chains underway, the upward trend could continue for the foreseeable future.
The steep learning curve
In securities, every day is a learning opportunity. However, the learning curve can be steep during unnatural events like the Russia-Ukraine conflict. If you perceive this as a downtime, then you can upskill and revisit your investing principles and financial goals. You can draw distinctions between how markets respond to public health crises, recessions, and geopolitical shifts. Those who navigated the Great Recession of 2008 were better positioned to weather the storm brought on by the pandemic. Likewise, the current crisis, too, will make you more proficient to handle future risks. It all boils down to your financial takeaways from the conflict.
