On Russia and Ukraine and Your Investments: 8 Questions You Should Consider

The stock market is reacting to news coming from the Russia/Ukraine border every day. Let’s talk about how you should react as an investor.

You shouldn’t.

That’s it. Thanks for reading today’s post!

Let’s Break It Down

Ok, ok. Let’s get serious and break down what’s going on. First, a very brief geopolitical backstory.

Russia and Ukraine have been at varying degrees of tension since the USSR dissolved in the early 90s.

That tension rose significantly in 2014 when Russia “annexed” Crimea, which is a synonym for, “we’re going to drive our tanks onto your potato farms and claim them as our own.”

Tensions rose again last year when Russia mobilized troops to the countries’ shared border. And this year has seen a frenzy of diplomacy involving Russia, Ukraine, most of Europe, NATO, and the U.S. The goal of that diplomacy? To communicate, rather than fight a “hot war.”

We sit here today wondering:

• Will a war break out?
• If it does, how bad will it be?
• Will such a war portend future Russian aggression in eastern Europe?

The stock market is wondering the same thing.

The Stock Market

War—or the prospect of war—causes tremendous uncertainty. Who will win? How bad will it be? Will it spread?

That uncertainty ripples into financial markets in the form of volatility.

Why?

Let’s counsel Benjamin Graham, the famed investor, mentor to Warren Buffett, and author of The Intelligent Investor. Graham once said,

In the short run, the market is a voting machine.

– Benjamin Graham

Investors buy and sell assets every day. Purchases and sales are their votes. Buying is a vote for optimism and selling for pessimism.

In the chaos of war, these votes can change rapidly. Good news = optimism = buying = increased prices. Bad news = pessimism = selling = decreased prices. We’ve seen that rapid change in recent days and weeks. Those changing votes cause market volatility.

But there’s a second half to Graham’s famous quote:

In the long run, the market is a weighing machine.

– Benjamin Graham

Voting is an opinion. Weight is a fact. And in the long run, the market will react to the factual economic outcomes from eastern Europe.

For now, let’s pause on this topic. We’ll come back to it.

Let’s talk about you.

Your Reaction to Russia and Ukraine

You might be wondering, “Should I change my investment strategy right now? Buy more? Sell more? Adjust your asset allocation?”

Fair questions. But those are all near-term questions based on recent geopolitical events.

The better questions to ask are:

• Have your financial goals (both short-term and long-term) changed because of the Russia-Ukraine conflict?
• Has your appetite for risk changed because of the conflict?
• Has your timeline (e.g. your retirement date, your kids’ college dates, etc.) changed because of the conflict?

For 99% of you, the answers are no, no, and no.

Your portfolio decisions should be a function of your goals, risk tolerance, and timeline. Since the Russia-Ukraine conflict is (most likely) not affecting your goals, risk tolerance, or timeline, then you should pull a John Bogle and stay the course.

Let the short-term volatility come and go. Stay on your normal rebalancing schedule. Turn off the news.

Questions to Consider

Still unconvinced? Take a look through these eight questions. I don’t have good answers for all of them, so I’m staying the course in my investments. Maybe you’re different.

• Under “normal” times, have you proven successful at timing the market?
• Do you have the geo-political expertise (or fortune-telling ability) to know where this conflict will stand in a week, a month, or a year?
• What’s your information source? The news? On-the-ground journalism? Top Secret dossiers? A guy on a blog?
• Is it possible that you’re missing vital information?
• Assuming you do have complete geopolitical insight, do you know how will the markets digest that information and react? How can you be sure? Markets are fickle when it comes to war…sometimes they go bullish, other times bearish, and other times sideways.
• What have the markets already priced in?
• And again – why have your goals, risk tolerance, or timeline changed? Rational answers only!!
• How does the “weight” (the long-term, factual economic outcomes) of war affect your investments?

Maybe you’re 8 for 8 in providing great answers to those bullets.

If not, you should closely reconsider any urge to change your asset allocations.

Stay the Course

War is scary. The geopolitical landscape, it’s a-changin’. But should that affect your investment portfolio?

Nyet.

Thank you for reading! If you enjoyed this article, join 8000+ subscribers who read my 2-minute weekly email, where I send you links to the smartest financial content I find online every week.

-Jesse

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