How to Improve Your Portfolio Strategy Amid the Russian-Ukrainian Conflict

Key points to remember

  • The Russian invasion of Ukraine led to instability in global financial markets, including stocks, bonds and commodities
  • Various countries (including the United States) have imposed sanctions on Russian energy exports, banks, technology and investment assets

The Russian-Ukrainian conflict has been in the headlines ever since Russia announced its intention to invade its closest neighbor on the world stage. As the situation unfolds, investors remain nervous about how the situation will affect their portfolios.

And for good reason: already, Russia has suffered sanctions, commodity prices have risen and stocks have fallen. Week after week, many major indices continue to post losses due to global and local market volatility.

While such a move in stock prices can get on the nerves of even the most stoic investor, it’s usually best to stay the course. But that doesn’t mean there isn’t room for improvement in your portfolio strategy. (Especially if the situation highlights potential weaknesses that you previously overlooked.)

If you’re worried about upgrading your portfolio strategy amid the Russian-Ukrainian conflict, here’s what to know.

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5 things to know as stocks weather Russia’s invasion of Ukraine

As world powers grapple with the sudden invasion of Ukraine, assets from all walks of life have been reeling amid geopolitical tension.

1. Sanctions are at hand.

In recent weeks, several countries (including the United States) have banned imports of Russian oil, natural gas and coal. Meanwhile, the UK has pledged to phase out its dependence on Russian energy imports, while the EU has offered new plans to diversify its energy supply.

Other sanctions and controls targeted Russia:

  • Banks
  • Technology
  • Investment assets
  • Sovereign debt and equity
  • SWIFT systems (the global financial messaging system that facilitates financial payments)
  • Oligarchs and businessmen close to Putin

2. Energy supply will decrease.

Russia remains one of the world’s largest producers of key commodities, including energy, some raw materials and agricultural products. While the United States has enough shale oil and agricultural production to support itself, the same is not true for most of Europe, which depends on Russian imports for its oil needs, gas, metals and agriculture.

As a result, sanctions against this export powerhouse are likely to impact commodity prices and supply chains around the world.

3. Product disruptions will continue.

Ukraine and Russia are crucial sources of commodities such as oil and natural gas, wheat, sunflower oil and fertilizers. Russia also produces disproportionate amounts of aluminum, nickel and palladium. Supplies of some of these materials were already scarce before the invasion – now there is no quick and easy solution to the inevitable global shortages.

4. Inflation may rise.

In the United States, inflation remains at its highest level in four decades and the sanctions against Russian imports are likely to worsen it. While it is difficult to predict the impact of supply chain nips on inflation, what is certain is that investors to fear this will have an impact on inflation. And in the stock market, expectations play an important role in setting prices. (Although most investors don’t expect the Fed to change its planned interest rate hikes anytime soon.)

5. It is impossible to know where the conflict will lead.

Given the wide variety of potential outcomes of the Russian-Ukrainian standoff (not to mention the interference of global sanctions), it is impossible to predict an optimal scenario. At this point, all that is certain is that global market volatility will continue until the situation progresses or is resolved.

Improving your portfolio strategy in the context of the Russian-Ukrainian conflict

Stock market uncertainty is always difficult to manage, especially in situations with no easy answer. But even in dark times, investors can find silver linings.

Review your financial goals.

The first step in dealing with volatility is to review your financial goals. Ultimately, any changes you make should align with your long-term plan and aim to increase the value of your holdings.

Diversification is the key.

A well-diversified portfolio is essential to get through tough times. Diversifying your capital across various asset classes and sectors can help offset the risks in turbulent markets. And remember: it’s not just where you invest, it’s how much. True diversification is the result of a balanced portfolio designed to meet your short, medium and long-term financial goals.

Remember that volatility leads to opportunity.

Market volatility can be a time to capitalize on current trends. That said, you shouldn’t change your entire strategy every time the market goes down. Instead, see if a few reallocations or new investments can complement your existing strategy.

For example, you can choose to increase your current contributions by 5% to take advantage of long-term gains when the market rebounds. Or you can divert some capital from a less performing asset to a better performing one.

However, you should always make sure that your investments match your long-term plan (even if they are short-term assets) and avoid the temptations of day trading.

Leave the big losers behind.

It is not uncommon for stock markets to react to global crises, especially one as large as the international invasion. In such circumstances, it is prudent to monitor the performance of your portfolio and identify laggards. Although some volatility is normal, you may want to exit any positions that are underperforming on a long-term curve. And, if you fear long-term damage, you can rotate some of your portfolio into less risky holdings.

Avoid hasty decisions.

Balancing your long-term plan and asset allocation strategy with current market events isn’t always easy. And while it’s tempting to manipulate volatility to enhance your returns (or avoid a loss), panicking or acting hastily is always a bad plan.

Instead, take a deep breath, examine your portfolio and the market, and keep your long-term goals in mind. Then, do some research to make sure any changes you make will support your long-term goals. Ultimately, volatility can be tough to endure, but short-term dips shouldn’t guide your lifelong strategy.

Don’t try to time the market.

Invasion or no invasion, timing the market is never a good idea. It’s impossible to predict when an investment has truly bottomed out or reached its peak, and making the wrong choice can have disastrous effects on your portfolio.

Instead, think of volatility as a time for profit in a “broad-spectrum” sense. You can increase contributions from your entire portfolio, allocate capital to a particularly underperforming sector known for its historical rebounds, or use some “play money” to get into some speculation.

But if you base your investment strategy on market timing, you are more likely to lose it all than to make a profit.

Defend the position.

If you want to take a few savvy steps to directly capitalize on the Russian-Ukrainian situation, you can turn to American aerospace and defense companies. Many of these stocks have seen substantial increases since the initial invasion. Additionally, as nations increase their defense spending budgets, more opportunities for investment in defense securities may arise.

Prepare for emergencies.

Although stock market volatility is likely to produce long-term gains, it’s always wise to have a reserve of cash on hand. If the market drops and a sudden expense arises, you might be better off spending your emergency fund than selling your portfolio. Remember: investing for your future is a long-term game, but short-term decisions can have major impacts.

Download Q.ai for iOS for more investment content and access to over a dozen AI-powered investment strategies. Start with just $100 and never pay any fees or commissions.


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Don F. Davis