This is certainly an unsettling turn of events. The behavior of one misguided individual and those that allow it to persist need to be brought to justice. It almost feels inappropriate to worry about money when the lives and livelihoods of many are at stake. So, let it first be known that humanity and compassion come first.
This unprovoked invasion in Ukraine is certainly going to affect some differently than others. So let us offer our sympathies to the Ukrainian citizens and those that have moved west and still have family members in their home country. There is truly little that can be done to protect yourself from an aggressor of this sort. The images are devastating. May those experiencing this first or second hand find safety and protection against these atrocities. It feels vain to address financial matters currently, but many people have real concerns about maintaining their existence as they know it. The severity does not matter, only that we as humans are emotional and have concerns that need to be addressed. So, with that said, I hope to ease the minds of the clients we work with every day to provide peace of mind during all types of events.
Our entire strategy is designed to provide a sense of well-being and confidence in your financial security. There are many pieces to your financial plan, that help build in safety nets while providing a sufficient return to meet your goals. Here is a list and explanation of each element that goes into creating a plan that can withstand most disruptions to the global economy and investment markets.
First, we must remember that investment returns are predicated on the perceived value of a company. What are the expected future cash flows of the companies that we invest in? When a disruption like this occurs, it creates uncertainty about the predictions that have been made about what the revenue and profits will be for those companies. As soon as new information is circulated, it impacts prices for these investments. This is true for both declining as well as rising investment prices.
The uncertainty, severity and spread that the added information can directly impact how investment markets react. In this case, all three are significant. But there are two additional parts to the equation. The immediate impact and the ripples that affect the connected economies. First, we are talking about an extraordinarily small part of the global economy. In consideration, a typical 60% equity and 40% fixed income portfolio at Novi would have less than 1% invested in Russia. So, if all were lost in that investment, the impact would be extremely minimal. So why it is affecting the global economy so much? The geopolitical agreements that tie the countries together are strained. This disruption has an impact on the greater European economy and will play a bigger role in the determination in pricing securities. Russia is a global player politically, and the outcome is still unknown how wide the threat will spread. Investors do not like uncertainty. What we do know, there are have been similar global threats in the past. Consider the chart below showing previous market disruptions. There is truly little chance of accurately predicting the top and the bottom of the market. What we do know, is that you can change your perspective from short-term to long-term, you can ease your concern of the temporary investment market fluctuations.
I know that seems like an uncomplicated way to escape answering the current uncertainty. It is not an escape, it is reality. We typically have a desire to feel in control and have the necessary information to make decisions. Well, these events are going to make many unpredictable turns. Your personal planning does not have to be as unpredictable. It is imperative to understand the difference between being in control and thinking you are in control. There is no way to predict the future of the markets consistently and reliably in the short term. We have experienced many terrible events in the past, and the resiliency of humans has helped move us forward once again.
What to do in the face of this adversity? Meet with your planner. We recommend that each individual or family have a financial plan, investment plan, and cash flow plan. When you combine these tools and do some scenario planning, most unfortunate circumstances can be minimized since the planning has already been tested. Focus on the elements within your control. It is never too late to get started on your planning if you do not have these elements in place.
Let me end this message with a request that we all try to be a little more humane. Take a moment to appreciate that most of us have the basic dignities we would hope every human can enjoy. And if you have the ability to spread a little compassion, please do not hesitate.
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