Russia’s invasion of Ukraine has shocked all of us. The loss of life and the humanitarian crisis are devastating, and our thoughts are with the Ukrainian people.
Many clients have asked if they own Russian stocks in their portfolios. Clients' direct exposure to Russian stocks is almost zero. Our stock portfolios generally have about 5% invested in emerging markets stocks, and of that amount, less than 1% is invested in Russia. Within these mutual funds and ETFs, the portfolio managers have been liquidating Russian stocks.
Still, the events have unnerved investors around the world. The conflict has led to rising energy prices and additional supply chain disruptions. Daily volatility in the markets has increased, and stock markets are down significantly.
While risk and volatility go hand-in-hand with investing, periods like this can test our resolve as investors. There is a strong temptation to sell stocks and move to cash, wait until the uncertainty passes, and then get back in.
But we’ve been many through periods of geopolitical risk and conflict. Each time, the most effective strategy is simply to stay diversified and remain invested. If your goals haven’t changed, your investment approach should not either.
Vanguard recently looked at stock market returns during geopolitical crises going back to the Cuban missile crisis in 1962. Each situation brought an initial market sell-off, but the market’s average total return one year after the event was 9%1.
We certainly don’t know how current events will play out, but the history of geopolitical risks shows that markets are resilient. Staying disciplined is essential to achieving strong returns over the long run.
As always, we are here to answer any questions.
David Rappaport, CFP®