Russia/Ukraine – What is the Impact on Investors?

On 24th February, Russia began a military campaign against Ukraine. Unsurprisingly, the event impacted investors across the globe.

Though none of us can predict what the Russian invasion will mean for the world economy, it’s worth bearing in mind that equity markets are typically resilient at the start of armed conflict. To set a context, Russia itself represents around 0.35% of global equity markets and its share of global GDP is less than 2%. And surprising things do happen – on the day of the invasion the US markets actually rose. Only time will tell what the impact will be but the Russian – Ukraine situation is not the only thing causing uncertainty.

With countries still grappling with Covid recovery, we also have soaring inflation and worrying hikes in the cost of living, notably a significant increase in the cost of gas. Whilst the Ukraine crisis will add to inflationary pressures, many experts agree that recession is not yet a risk. However, the pace of global growth is starting to slow with the IMF forecasting global growth to moderate to 4.4% in 2022. That said, the UK economy is still expected to be the fastest-growing of the G7 nations, UK PLC remains cheap relative to global peers.

Once again, events outside of your control underline the importance of adopting a long-term mindset for your investments. With so much uncertainty, the best approach is to stay calm and have patience. Though it can be tempting to react, you should only do so when it makes sense against your long-term plans and objectives.

Managing market volatility – what to do?

• Don’t react

Investors always have and always will face market volatility. The key is not to panic. Instead, remember you are investing for the long-term. The longer a portfolio is held, the more likely it is to deliver positive results. But you must also have realistic expectations. Good returns are counter-balanced by down periods, in this way, investing mirrors the ebb and flow of life.

• Diversify

The Russia – Ukraine situation also underpins the importance of having a diversified portfolio that reflects your appetite for risk. A diversified portfolio – owning a mix of assets across shares, property and bonds – will mean you’re not exposed in one particular area if/when it’s not performing as you need it to.

• Think long-term

Again, even with a diversified portfolio, it’s important to maintain a long-term mindset. Remember, you have spread your risk, created resilience and need to give your investment time to deliver against your goals. Taking this approach removes the worry and stress away when the markets are volatile. Try to see volatility as part and parcel of investing, and nothing that you necessarily need to react to. When markets fall, they recover. Strong markets weaken, it’s all par for the course.

When to take action

As we have explained, external events should rarely be the driver for changes to your portfolio because the market goes up, then it goes down, then it goes up again. You need to be prepared to weather the storms.

The right time to make changes to your investment plans is when your circumstances change and you need access to cash or if there is a clear need to rebalance your asset allocation due to changes in the long term return expectations or to bring it back in line with your chosen risk profile.

Simply feeling uncomfortable because the markets go down is not a good reason to exit the markets. Unfortunately, you have to learn to live with the discomfort and see it as part and parcel of investing.

And believe in the historical data, that the long-term investor will almost certainly be better off

Still concerned?

If you would like to discuss aspect of your portfolio, don’t hesitate to contact a member of our financial planning team.