“It’s hard to call this one,” said Florida-based certified financial planner Mari Adam. “We just don’t know.”
But if you’ve been concerned about whether the geopolitical turmoil might negatively affect your savings and investments, here are a few ways to assess your situation and guard against potential losses.
Rapid-fire news reports about soaring energy and food prices or talk of a potential world war or nuclear attack are unnerving.
But history often shows that making financial decisions based on an emotional response to major events is often a losing proposition long term.
“Making a radical change in the midst of all this uncertainty is usually a decision that [you’ll] regret,” said Don Bennyhoff, chief investment officer for Liberty Wealth Advisors and a former investment strategist at Vanguard.
Look back at periods of war and other crises in the last century and you’ll see that stocks typically came back faster than anyone might have expected in the moment, and did well on average over time.
For example, since the financial crisis hit in 2008, the S&P 500 returned 11% a year on average through 2021, according to data analyzed by First Trust Advisors. The worst year in that period was 2008, when stocks fell 38%. But in most of the years that followed, the index posted a gain. And four of its annual gains ranged between 23% and 30%.
If you go back as far as 1926, that annual average return on the S&P has been 10.5%.
“Staying the course may be hard on your nerves, but it can be healthiest for your portfolio,” said Rob Williams, managing director of financial planning, retirement income and wealth management at Charles Schwab.
That’s not to discount the seriousness of nuclear threats and the chance that this period could diverge from historical patterns. But were things to truly escalate globally, Williams noted, “we’d have more to be concerned about than our investment portfolios.”
Instead of making changes based on your reaction to the latest events, first review your financial situation holistically.
Cover your near-term cash needs
It’s always a good idea, but especially when confronted with big events beyond your control, to make sure you have liquid assets for your most urgent needs.
That means enough money set aside in cash, money market funds or short-term fixed income instruments to cover near-term tax payments, unexpected emergencies and any big, upcoming expenses (e.g., a down payment or tuition).
This is also advisable if you are near or in retirement, in which case you may want to have enough liquidity to cover a year or more of the living expenses that …….