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Could War Affect My Investments?

Zoe Team

Feb 25, 2022

5 min read

A financial advisor reviewing a plan with two clients at a table

Key Takeaways

Geopolitical uncertainty often creates short-term market volatility but rarely dictates long-term investment outcomes.
Investors should focus on maintaining a diversified portfolio to mitigate the impact of localized global conflicts.
Panic-selling during war-related market dips often prevents investors from benefiting from eventual market recoveries.

Frequently Asked Questions

Should I sell my investments if war breaks out?

Generally no; history shows that markets often recover from geopolitical shocks, and selling in a panic can lock in losses and prevent recovery gains.

How does war affect my wallet?

War can cause market volatility, inflation, and changes in commodity prices, but long-term investment success depends on your original strategy and goals.

How can I protect my investments during times of uncertainty?

Focus on maintaining a well-diversified portfolio that aligns with your long-term risk tolerance rather than reacting to short-term headlines.

For many, one of the biggest questions is: How will this situation affect my wallet and investments?

This week, we woke up to a world of uncertainty. Every news outlet is talking about Russia’s military assaults on Ukraine. Due to its complex geopolitical nature, the potentiality of war will have meaningful repercussions across political, social, cultural, and economic dynamics. With thousands of people world wide already affected, numerous financial concerns undoubtedly arise. For many, one of the biggest questions is: “How will this situation affect my wallet and investments?”

What Is The Crux Of The Matter?

“An undeniable effect of the global economy is that what happens on one side of the world has repercussions in other markets,” said Andres Garcia-Amaya, Zoe’s Founder & CEO.

With Russia being the third-largest global oil producer, this conflict has affected oil prices. After a steady rise throughout the start of 2022, the barrel of Brent crude was up 2.3% on Thursday, jumping to a price per barrel above $105 for the first time since 2014. Considering oil jumps, along with wheat and corn disruptions, an impact on inflation is inevitable.

The Russia-Ukraine conflict is generating a strong market pressure that is affecting the stock market across the globe. Increasing tension has caused an impact in the US market with the S&P 500 Index dropping 2.5% and the Nasdaq Composite tumbling 1.5%.

What Does History Tell Us?

The threat of a potential war understandably causes anxiety and tension, but historically we’ve seen that after a crisis, markets rebound. As a matter of fact, the effect on the Dow Jones from some of the greatest global crises shows that while it takes it on average 18 days to hit bottom, the recovery from the fall is faster.

Moreover, data shows that during periods of war, stock market volatility has historically been lower and returns have been higher than the index average including non-war years (11.4% vs 10%).

This news has been shaking the whole world, but it is not the first time that the Russia-Ukraine situation has been in crisis. In 2014, Russia invaded Ukraine after the pro-Russian President Viktor Yanukovych was deposed for rejecting a deal of integration with the EU. Back then, the S&P 500 and Nasdaq Composite dropped 0.7%. Despite this, after the crisis, the global market did what it does: recover.

What Should Investors Do?

The (almost natural) reaction of nervous investors is to dump their stocks. However, there are a few things you should keep in mind before impulsively rushing into making changes to your portfolio due to a geopolitical conflict.

1. Remind Yourself That Market Volatility Is Normal

Market volatility is not only normal, it also should be expected. The stock market is a rollercoaster with ups and downs. While the market fluctuates, a good approach to maintain your peace of mind is to remind yourself how normal it is and to avoid making emotion-driven investment decisions.

2. Stay The Course

While it’s easy to let market pressures spook you, a good way to unwind about it is remembering why you’re doing this and whether your focus as an investor is “market timing” or “time in the market.”

In the long run, “beating the market” might not be the best way to go. It’s impossible to know in advance how the market will act, which could increase the risk of buying high and selling low. Unless you have a crystal ball, the right way to go about it is to let the market do its thing, while you stay the course. Historically, this approach has provided greater returns than jumping in and out of the market at what you believe are the lows and highs.

3. Focus On What You CAN Control

Even in times when there are no geopolitical tensions or imminent war threats, there are many things that are out of your control. Market returns is one of them. A good way to avoid anxiety is focusing your attention and energy on the things you can actually impact.

A great starting point is ensuring that you are spending less than what you are making, which will keep you from having to withdraw from your investments in times like this. Another factor you can control is seeking guidance from the right wealth advisor for you.

If you already have that covered, you can work with them to review your emergency fund and current portfolio holdings. It might also be a good time to have a conversation with your advisor about assessing your risk tolerance.

Finding Calm In Unsteady Times

“Feeling nervous about the potential effects of the Russia-Ukraine conflict is only human. After all, there’s a lot of complexity and uncertainty behind how the stock market could react to geopolitical events such as this,” said Garcia-Amaya.

When it comes to your investments, it all comes down to the impact the crisis could have on the earnings of the companies you own stock from. It depends on many factors like scale, which are still hard to measure. However, how you approach it and what you do about it might determine the outcome of your investments (and your peace of mind).

Stressing about it and rushing into making decisions cannot solve much for you now, so the best approach is to take a step back from impulsive actions and think about the long-term view.

For many, one of the biggest questions is: How will this situation affect my wallet and investments?

What Is The Crux Of The Matter?

“An undeniable effect of the global economy is that what happens on one side of the world has repercussions in other markets,” said Andres Garcia-Amaya, Zoe’s Founder & CEO.

What Does History Tell Us?

Moreover, data shows that during periods of war, stock market volatility has historically been lower and returns have been higher than the index average including non-war years (11.4% vs 10%).

What Should Investors Do?

1. Remind Yourself That Market Volatility Is Normal

2. Stay The Course

3. Focus On What You CAN Control

Finding Calm In Unsteady Times

Stressing about it and rushing into making decisions cannot solve much for you now, so the best approach is to take a step back from impulsive actions and think about the long-term view.

Disclosures: Zoe Financial, Inc. ("Zoe Financial") is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. Zoe Financial provides investment advisory services and access to independent registered investment advisers through its platform. The information provided by Zoe Financial is for educational and informational purposes only and should not be construed as personalized investment advice or as an offer to buy or sell any security. All investments involve risk, including possible loss of principal. Past performance is not indicative of future results. Clients should consult with their own financial, tax, or legal professionals before making any investment decisions. The material presented by Zoe Financial is for informational purposes only and is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment product. Material presented has been gathered from sources believed to be reliable, however Adviser cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Past performance is no guarantee of future results. Zoe Financial does not provide legal or tax advice, and nothing contained in these materials should be taken as legal or tax advice. SEC Registration does not constitute an endorsement of Zoe Financial by the SEC nor does it indicate that Zoe Financial has attained a particular level of skill or ability. The sole purpose of this material is to inform, and it in no way is intended to be an offer or solicitation to purchase or sell any security, other investment or service, or to attract any funds or deposits. Investments mentioned may not be appropriate for all clients. Before making any investment, each investor should carefully consider the risks associated with the investment, as discussed in the applicable offering memorandum, and make a determination based upon their own particular circumstances, that the investment is consistent with their investment objectives and risk tolerance. Lower expenses do not guarantee better investment performance. Certain information contained herein may constitute forward-looking statements. Due to various risks and uncertainties, actual events, results or the performance of a fund may differ materially from those reflected or contemplated in such forward-looking statements.

Disclosure: This page is not investment advice and should not be relied on for such advice or as a substitute for consultation with professional accounting, tax, legal or financial advisors. The observations of industry trends should not be read as recommendations for stocks or sectors.

Investment advisory services are provided by Zoe Financial, Inc. (Zoe Financial), an investment adviser registered with the U.S. Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training. Learn more about Zoe Financial on the SEC’s Investment Adviser Public Disclosure website. Brokerage services are provided by Zoe Securities LLC and Apex Clearing Corporation, members of the Financial Industry Regulatory Authority Inc. (FINRA) and Securities Investor Protection Corporation (SIPC). Learn more about Zoe Securities and Apex on FINRA’s BrokerCheck website.

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