What does war and geopolitical risk mean for my financial plan?

March 17, 2022

Headlines, trends, conflict, and the natural progression of the economic cycle can leave us wanting to get off the sometimes-wild ride of equities. In uncertain times, we should take a step back and reassess our financial priorities and take stock of true economic impact.

The events unfolding in Ukraine are tragic. The implications of this war will have long-lasting humanitarian and economic consequences. Our modern-day view of globalization is forever changed. From a real economic output perspective, Russia represents 3.11% of global GDP, while Ukraine represents .14%. Further, even as Moscow threatens large US companies like McDonalds and Proctor & Gamble, the Russian market represents less than 2% of their gross annual revenue.

The biggest shock has and will come in the form of higher commodity prices and the large migration of refugees out of Ukraine to periphery countries like Poland. Higher wheat prices could impact the price of food globally causing further inflationary pressure on businesses and consumers.

So why have the markets taken a hit? The simple answer is that markets never like uncertainty and the markets especially don’t like inflation. What about the market in past conflicts? By comparison the attack on Pearl Harbor saw a total market draw down of 19.8%, the Cuban missile crisis 6.6% respectively.

The good news is there is a coordinated effort by global economies to dampen the impact of commodity shortages by increasing their output. Australia for example, is expected to have a record wheat crop harvest which will lead to higher output than normal. Further, OPEC will continue to be pressured to increase output and stop oil prices from spiraling upward.

What does this mean for you? Reassess your financial plan and withdrawals from your portfolio, buy on the dips, think long term, and diversify.

If you are concerned with current market volatility and the impact on your plan please schedule an appointment.

Source: LPL Research, S&P Dow Jones Indices, Wall Street Journal

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