How to manage your money in the midst of global turmoil

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“It’s hard to call it that,” said Mari Adam, a certified financial planner based in Florida. “We just don’t know.”

But if you’re worried if geopolitical turmoil could negatively affect your savings and investments, here it is someone ways to assess your situation and protect yourself from potential losses.

The quick news of soaring energy and food prices or the talk of a potential world war or nuclear attack is unnerving.
Oil price shocks cause recessions.  Will this do the same?

But history often shows that making financial decisions based on an emotional response to important events is often a long-term losing proposition.

“Making a radical change amidst all this uncertainty is usually a decision that [you’ll] regret, “said Don Bennyhoff, chief investment officer of Liberty Wealth Advisors and former investment strategist at Vanguard.

Look back at times of war and other crises of the last century and you will see that stocks generally came back faster than anyone would have expected at the time and have done well over time on average.

For example, since the financial crisis hit in 2008, the S&P 500 has returned an average of 11% annually until 2021, according to data analyzed by First Trust Advisors. The worst year in that period was 2008, when shares fell 38%. But in most of the following years, the index made a profit. And four of his annual earnings ranged from 23% to 30%.

If you go back to 1926, the average annual return on the S&P was 10.5%.

“Staying on course can be hard on your nerves, but it can be healthier for your wallet,” said Rob Williams, chief executive of financial planning, retirement income and wealth management at Charles Schwab.

This is not to rule out the severity of nuclear threats and the possibility that this period could do so diverge from historical patterns. But if things were to really degenerate globally, Williams noted, “we’d be more concerned about our investment portfolios.”

Instead of making changes based on your reaction to recent events, first review your financial situation holistically.

Cover your short-term cash needs

It’s always a good idea, but especially in the face of large events beyond your control, to make sure you have cash for your most urgent needs.

This means enough money set aside in cash, money market funds, or short-term fixed income instruments to cover short-term tax payments, unforeseen emergencies, and any upcoming expenses (for example, a down payment or tuition).

This is also advisable if you’re close or retired, in which case you may want to have enough cash to cover a year or more of the living expenses you’d normally pay with withdrawals from your wallet, Williams said. This should be the amount you would need to top up your fixed income payments, such as social security or a private pension.

Additionally, Williams suggests having two to four years in low-volatility investments such as a short-term bond fund.

This will help you overcome any downturns in the market should it occur and give your investments time to bounce back.

Review your risk tolerance

It’s easy to say that you have a high risk tolerance as the S&P 500 continues to set record highs. But you need to be able to withstand the volatility that inevitably comes with investing over time.

Then review your holdings to make sure they are still in line with your risk tolerance for a potentially more rocky road to go. And while you’re at it, find out what “losing” money means to you.

“There are many definitions of risk and loss,” Bennyhoff said.

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For example, if you keep money in a savings account or CD, any interest rates you are earning will likely be outweighed by inflation. So, as you hold onto your capital, you lose purchasing power over time.

Then again, if it’s more important to preserve capital for a year or two than to risk losing it – which could happen when you invest in stocks – that inflation-based loss might be worth it for you because you’re getting what Bennyhoff calls. a “peaceful return”.

That said, for long-term goals, try to figure out how comfortable you feel by putting some risks at risk to get a higher return and prevent inflation from devouring your savings and earnings.

“Over time you are better and safer as a person if you can grow your wealth,” said Adam.

Rebalance your wallet

Given record equity returns over the past few years, now might be a good time to rebalance your wallet if you haven’t done so in a while.

For example, Adam said, you may be overweight in growth stocks. To help stabilize your returns in the future, he suggested perhaps reallocating some money into slower-growing, dividend-paying value stocks through a mutual fund.

Make new investments slowly

If you have a large lump sum – perhaps you just sold your business or home, or received an inheritance or a large bonus – you may be wondering what to do with it now.

Given all the global uncertainty, Adam recommends investing it periodically in smaller portions, such as every month for a set period of time – rather than all at once.

“Space your investments over time as this week’s news will be different from next week’s,” he said.

Reevaluate the assumptions

In the months leading up to the Russian invasion of Ukraine, the expectation was that the Federal Reserve would raise interest rates several times this year to curb high inflation.

Now? Maybe not that much.

“The short-term effects on the US economy of the invasion of Ukraine, the ongoing war, sanctions and events to come remain highly uncertain,” Federal Reserve Chairman Jerome Powell told lawmakers Wednesday. “Given the current situation, we need to move with caution.”

This could push government bond prices higher and rates lower if investors were to seek US Treasuries as a safe haven asset on an ongoing basis. And it could mean that interest rates on savings may not move as high as they could when everyone expected the Federal Reserve to raise rates substantially this year.

Do your best. So let it go

Keep in mind: it is impossible to make perfect choices as no one has perfect information.

“Gather your facts. Try to make the best decision based on these facts, as well as your individual goals and risk tolerance.” Adam said. Then, he added: “Let it go”.

(If you want to help Ukrainians who have had to flee or who is left to fight, here is a growing list of organizations to which you can make a donation.)

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