Will Russia's Invasion of Ukraine Impact My Investments?
EDITOR’S NOTE: This was not a question asked directly by someone, but it is on a lot of people’s minds so we decided to throw in our own question. Specifically, how could the invasion and potential larger war in the Ukraine impact portfolios, stocks, and your retirement chances?
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It’s been quite a crazy year so far and we haven’t even hit the tax deadline yet. Following ongoing pandemic impacts and a high inflation report markets again were impacted by the shocking invasion and bombing of Ukraine by Russia. Historically, geopolitical events have had short-term impacts on the world economy and investment markets, so the humanitarian impact is likely to be much larger than the economic one. While the market has, and will continue, to be impacted by world events, the specific impact of the Russian invasion will likely be short lived – because while history doesn’t repeat, it does rhyme.
Russian Roulette
The humanitarian impact of Russia’s aggression has yet to be fully seen, and while the suffering for the Ukrainian people will last for some time it likely won’t have long-term economic impacts for the rest of the world. Geopolitics have tended to have only short-term impacts on markets, with average returns recovering within just six months after the event. The below chart shows some of the major military actions of the past few decades, including Russia’s original invasion of Crimea, and their impact on returns immediately after the event (yellow), 1 month after the event (orange) and a year after the event (dark orange).
Markets Tend to be Up One Year After Horrible Events
In fact, a study by Rifinitiv that included every major geopolitical event over the past 60 years had an average 6-month return of 5% and an average 12-month return of 9% after the event and original downturn. These events include the Cuban Missile Crisis, the assassination of President Kennedy, the impeachment of President Nixon, the beginning of the Vietnam war, and a dozen other major events. Except for the Nixon impeachment, markets have been quite resilient to global political turmoil. Again, short-term volatility is to be expected, but long-term market problems are not.
What To Focus On
While the invasion is scary for many reasons, our economic future isn’t one of them. As individuals and as a country, focusing our energy and efforts on helping the Ukrainian people and putting an end to the invasion and the bombings will be a far better use of our time than worrying about any short-term impact on the economy.
You can contact your Senators and Representatives and encourage them to support actions intended to stop or punish Russia’s continued invasion. And, if you are looking for organizations to donate to, Amnesty International has a campaign to protect Ukrainian civilians and UNICEF has set up a fund specifically to help Ukrainian children. Surprisingly, you can also donate to Ukraine’s National Bank to fund the Ukrainian military – although this one won’t qualify for a tax deduction and there is the possibility the money may not be used for what you intended.
Although there is present uncertainty and no one can predict the future, history provides us a bit of reassurance. So for now, our best course of action is to focus on what we can control and be grateful for how we can help.