Stock markets worldwide declined this week as investors grapple with the implications of Russia’s invasion of Ukraine, rising inflation, and growing anticipation of higher interest rates being implemented by the Federal Reserve in the coming weeks and months. The developing conflict between Russia and Ukraine is an important reminder that geopolitical risk is an evergreen component of investing in global equity markets, which can be emotionally challenging to navigate as an investor. Headlines with words like “war” and “invasion” are alarming for us all and induce concern and thoughts of worst-case scenarios. But before considering any abrupt or drastic action, please consider the following:
Most importantly, don’t panic about the possible impact of geopolitical events on your portfolio. Keep the long-term in mind. Stocks offer higher expected returns precisely because they carry high risk. Last year, in 2021, stock market volatility was historically low, and risks became less obvious as stock markets marched higher. The last few days remind us of these inherent and inevitable risks. Remember that the attractive historic returns on stocks include many challenging timeframes, including world wars, recessions and depressions, high inflation, pandemics, terrorist attacks, and corporate scandals.
We will continue monitoring the global economic situation and keep you informed of our observations and insights. We will continue to look for strategic opportunities to rebalance portfolios (which will probably mean selling bonds and buying stocks at lower prices) and harvest losses for tax purposes.
As always, we are humbled by the trust our clients have placed in us. Please do not hesitate to contact one of our financial advisors if you’d like to discuss your portfolio or overall financial situation.
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