Spring has (almost) sprung and the hits just keep on coming. Last year, COVID overwhelmed the news (and has not been completely pushed from our consciousness). And now, after months of troop buildups and all the warnings that Russia and their “emperor” intended to move into the sovereign nation of Ukraine, and all the denials and hope that war could be averted, the invasion has begun. More on this shortly.
ZOOM Webinars for Clients
We are taking our “Spring Break” from doing webinars this month. Stay tuned for the announcement about the April show.
If you missed it, John did an excellent job of presenting the nuts and bolts of the RFPS Investment Planning Strategies a few weeks ago. The presentations can be found in the Media & Posts tab on our website www.realityfinancialplanning.com.
If there are any topics for which a Zoom presentation would be relevant to you, please let us know.
War and The Casino
For the second time since 2014, Russia is using its army to seize territory in blatant disregard of international norms or, it should be said, human life.
Compared to what Ukrainian citizens are going through right now, Americans are in relative comfort; no shells bursting overhead, no tanks rolling through our streets. That doesn’t mean there won’t be some discomfort; already the price of gas has risen, even before sanctions cut off the world’s number two oil producer.
There will be no small discomfort for Russian citizens. The U.S., and European governments and Japan are escalating their sanctions against the Russian economy, which will effectively isolate the country from the global banking system and obstruct or shut off many opportunities for trade. The Germans have cancelled the Nord Stream 2 pipeline that was to have bypassed Ukraine to deliver Russian natural gas directly to European consumers, which represents a huge financial blow to the aggressor nation. Most importantly, central banks are cutting off the flow of funds through the SWIFT system (a method by which the financial system transfers funds between themselves) with and from Russia.
Whenever there is war anywhere on the planet, it is natural to feel uncertainty at the least, fear at the worst. We cannot sugarcoat the fact that this aggression will heighten political tensions in Europe and around the world, and we can look forward (if that’s the right word) to a parade of the kind of unsettling images that wars produce in abundance.
At a time when many investors have become antsy about the U.S. stock market, one thing we did not need was an aggressive military incursion in Europe. But that’s what we got, and as the Russian annexation of parts of Ukraine dominate the headlines, it is drowning out any positive news about the actual companies being traded. You are probably not hearing that the earnings for companies in the S&P 500, in aggregate, rose 22% last quarter, or that overall economic growth in the U.S. continues to be unusually robust.
Veteran investors tend to scratch their heads when eye-grabbing world events trigger market downturns. Why? Because it’s hard to see any clear way that troop movements in Ukraine materially impact (aka: diminish) the actual underlying value of the companies they’re invested in. History tells us, pretty clearly, that once these times of headline panic have passed, stock prices migrate back to whatever they have been worth all along. This has happened through some events that were much more dramatic than what we’re facing today: World War II, the Cuban Missile crisis, the Kennedy assassination—and, more recently, the sudden realization that the Covid pandemic was a real threat to our collective health and safety.
The investment implications of all this are uncertain—but, of course, that is true at literally every moment in time; none of us can see the future, and we especially cannot see how the markets will respond to any particular event. There is an interesting phrase on Wall Street, that ‘the smart money’ is betting on this or that outcome. But the truth is that the smartest investors, the investors who have enjoyed the best long-term outcomes, don’t bet at all. They understand that nothing that happens along the Ukraine border will change the underlying value of U.S. stocks.
There are two ways to lose money in the markets. The first is to harvest losses in stocks, mutual funds, or ETFs for tax purposes, and that often leads to re-investment once the tax benefits have been reaped. The other is to sell when the markets are dropping, which transforms paper losses into tangible ones. In past downturns, many people locked in their losses while long-term investors ignored the random white noise of market ups and downs, rode out the declines and never experienced any loss at all.
The allegedly ‘smart money’ is right now looking for the right bet to place on the rumble of tanks in Europe. If the past is any indication, the ‘winning’ investors will be the ones who refuse to enter the casino.
The best prediction we can make is that the people who will suffer losses if this Ukraine-triggered downturn persists are the investors who sell out of their portfolios, lock in their losses, and miss the eventual recovery. It requires unusual discipline to ignore even moderately scary headlines, which means that many investors will suffer real financial damage as they try to outwit whatever the market is going to do next.
We can pray for the people who are suffering the impact of military aggression, and we can hope and expect that our world leaders will successfully navigate this crisis as they have so many others. What we can’t do is predict how the markets will behave in the next few weeks or months—taking some small comfort in the fact that nobody else can either.
As always, thank you for the trust and confidence you place in us. It is something we never take for granted and sincerely appreciate. Please do not hesitate to reach out whenever you have questions, concerns or whenever we may be of service to you.
Joe Downs, CFP® & John Cunningham, CFP®