Worried About Ukraine and Your Money? Consider these Six Things.
Words seem to fail when attempting to describe the horrors of war currently faced by the people of Ukraine. Since last Thursday, millions of innocent Ukrainians have been displaced and hundreds killed following Russia’s invasion of an Eastern European democracy.
Indeed, world leaders have since responded by providing Ukraine with financial and military support while imposing heavy economic and financial sanctions on Russian President Vladimir Putin and his cronies. Today, much of the world looks on with bated breath, hoping for a quick and triumphant victory for the Ukrainian people.
How and when this war ends remains largely unknown. It could end tomorrow or persist for weeks to come. Indeed, we’re hopeful that delegates from Ukraine and Russia can find a way to end this war diplomatically. Even so, as we pointed out in last week’s note, a seismic shift in the geopolitical status quo could lead to economic spillover effects that likely will impact US households for months or even years to come.
So, this leaves many asking, what do these developments mean for my finances, and is there anything I should do right now to protect my wealth? Well, here are six points you may want to consider when it comes to guarding your money during periods of uncertainty:
#1 Expedite big-ticket purchases
Inflation is likely to stay elevated for months to come as a result of this conflict. If your emergency fund is already topped up (see point #3 below) and you have adequate means to buy a new car, house, or anticipate any other big-ticket cash expenditures later this year, you may want to consider purchasing those items now before they become more expensive later.
While a military confrontation currently is limited to Russian and Ukrainian, globally imposed sanctions could, directly and indirectly, affect imported goods and compound supply chain issues that have recently contributed to inflation’s rise to multi-decade highs. That’s why front-loading spending within your means today may help you avoid potentially higher prices tomorrow.
#2 Revisit your lifestyle spending and savings plan
While inflation’s rise likely will mean higher costs for big-ticket spending, you can also expect to pay more on everyday living expenditures not only over the coming months but also potentially for years. Not accounting for these rising costs could leave your retirement nest egg falling short. Indeed, uncertainty surrounding the implications of sanctions and global supply chain efficiency could broadly affect the cost of keeping the lights on at home, filling up your gas tank, eating out, or even buying everyday staples.
In isolation, these higher expenditures may seem manageable in the near term. However, not accounting how these expenses could remain at elevated levels over the long-term could potentially derail your overall financial independence journey when not considered within the context of your broader lifestyle spending goals. That’s why now’s a good time to reset future cost of living expectations in the face of higher inflation, recalculate your traditional/early retirement total savings need, and make necessary adjustments today to your lifestyle spending or savings contributions to ensure that your everyday financial decisions keep you aligned with your path to financial independence.
#3 Top up your emergency savings fund
The US labor market remains favorable for workers and job seekers alike by many measures. Indeed, while jobs in specific sectors of the economy are plentiful and wages continue to rise, the fact is that US economic growth is slowing and faces headwinds from ambiguous central bank policy, systemic financial instability, and global military conflict.
While an economic recession is not baked into economists’ GDP forecast of 3.5% this year, a policy misstep by the Federal Reserve, a shock to the global financial system or a global military escalation could put downward pressure on US economic activity. That’s why if you don’t have 6-9 months-worth of cash to cover living expenditures, now may be the time to reconsider big-ticket spending decisions along with how much you spend on non-essential goods and services, so that you can increase your monthly savings or reduce needed distributions from your retirement savings.
#4 Prepare for a smaller employer bonus or limited equity award payout
Even if you feel like your job is secure and your emergency savings are topped off, relying on an employer bonus or equity award payout to cover living expenses may lead to financial disappointment later this year. Generally speaking, firm bonuses are tied to corporate earnings. As evidenced during the Covid-induced recession, when economic conditions soften and earnings decline, employers tend to cut back on incentive compensation in a given year.
Present expectations of weaker economic conditions, combined with many of the risks we’ve already mentioned, likely could weigh on risk asset prices this year. That’s why if you’re the recipient of equity awards and dependent on ISOs or RSUs to cover a portion of your lifestyle spending needs, you may be in for a disappointment should stock prices decline in the months ahead. Put simply, you may want to reevaluate how much of your household outlays are funded by once-per-year windfalls and consider adjusting your lifestyle spending today.
#5 Avoid timing the markets & increase your home country bias
When it comes to your investments, how markets respond to Russia’s war with Ukraine likely will depend on day-to-day developments. As such, we expect market volatility to ebb and flow with the news cycle. Indeed, there are times when you may be tempted to make changes in your investment portfolio when it appears that the news is about to get bad.
Nevertheless, during these times of uncertainty, astute investors stick to their disciplined investment process. Rather than trying to identify an inflection point in stock prices or trying to time the next move in the markets, you’ll likely be best served by ensuring that your portfolio is aligned with your long-term goals over the coming years, rather than responding to near-term uncertainties by trying to pick the right securities to buy or sell over the coming days and weeks.
#6 Rebalance international risk exposure
Finally, the Russia-Ukraine war coupled with the potential for further confrontations with China has some investors concerned about holding securities tied to these countries in their investment portfolios. While we continue to advocate for investing internationally, we also believe that now may be a good time to reevaluate your investment exposure to countries where the rule of law or the potential for escalating military conflict may lead to downside investment risks.
We’re evaluating the current situation more opportunistically, particularly as it relates to international vs. domestic exposure. Indeed, while Russian securities make up a small portion of emerging market stock and bond benchmarks, China’s dominance in traditional EM indices likely may argue for a tactical rebalance from traditional asset class benchmark guidelines. We’ll provide further guidance and clarification to our active clients in the coming weeks.
For now, only time will tell whether the current situation will escalate to a broader conflict or settle more amicably. Our hope is that substantial financial and economic sanctions coupled with a solid political resolve from Western leaders will convince Putin to end his military incursion in Ukraine. Until then, we anticipate market volatility to ebb and flow with the news cycle. For now, avoiding the noise, evaluating the six items we covered today and committing to your long-term financial plan will not only give you peace of mind during this time of uncertainly, it may also enable you to continue your journey toward financial independence mastery.
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