In the first hours of the Russian invasion of Ukraine this week, stocks fell sharply, and investors saw that their savings in plans 401 (k) had disappeared, raising concerns even more.
A few hours later they recovered all their losses for the day and then some when the market made a sharp reversal.
This is “a great reason why investors should try not to get into dramatic events when they unfold. This rarely leads to wise decisions, ”said Jeffrey Kleintop, chief global investment strategist Charles Schwab.
Experts say there may be more volatility in the future, but warn against taking action based on global developments and usually short-term shifts in the stock market. They said the invasion of Ukraine on Thursday had contributed to the economic downturn caused by inflation, and that its impact would not have long-term consequences.
Until Friday, stock prices continued to rise amid the prospect of talks between Moscow and Ukraine – and the fact that the United States and other countries were holding back the toughest sanctions against Russia, which many feared would lead to global economic turmoil.
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Geopolitical developments, including previous wars and Russian invasions of Georgia and Crimea, have had limited impact, experts say.
“If history repeats itself, they have not had a really long-term impact on the markets,” said A. Sedik Meziani, a professor of accounting and finance at Moncler State University. “We’re not talking about the collapse of a bank like Lehman Brothers here.”
He said that regular investors, including people who are worried about their pension funds, need to refrain from any impulsive actions. He said selling off investments during the crisis could be costly, and that sudden stock market declines are “unrealized losses” for patient investors.
“But once you act on it, they become realized losses – a big difference,” Moesian said.
“I think they need to calm down, drink a cup of good tea like I’m drinking now, and just hope it’s done and nothing more about this 401 (k),” Moesiani told investors.
Since the beginning of the year, the stock market has lost 10% of its value, mainly due to inflation and fears of rising interest rates, experts say. Russia’s military action against Ukraine has been expected for some time, adding market losses but mitigating the consequences.
“That 10% isn’t a disaster,” said Michael Ehrlich, an associate professor of finance at the New Jersey Institute of Technology. “We call it a correction. We see amendments all the time. “
But he said that if Russia expands the war against Ukraine and captures the whole country, “we will definitely see that a bear market will come out of this; it wouldn’t shock me. “
Impact of sanctions
Kleintop said that the rapid recovery of the market since Thursday morning was facilitated by the fact that President Joe Biden and European leaders restrained the most severe sanctions against Russia – and will not disconnect Russian banks from the international banking system, which may cripple financial operations. an economy with global economic implications.
“The fact that this is not happening means that sanctions have fewer teeth, but it also means that the economic consequences are smaller,” Kleintop said. “And that was a key part of helping markets recover.”
Stephen Matthew-Davis, CEO of New York-based investment company Q.ai, said he believes Russian President Vladimir Putin has achieved his goals and the invasion will have no further impact on the market. He also said that previous sanctions against Russia imposed by Congress during the Trump administration had damaged the Russian economy and “it has not affected us.”
“The worst, of course, is over,” he said.
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He said his company had advised people to move some investment in precious metals from late last year, but any drastic change in the portfolio after the invasion was pointless because “an event has already taken place”.
“It would have been wise to single out less risky assets two to three weeks ago,” Matai-Davis said. “Changing the distribution when an event occurs is usually not a recipe for success.”
Reduce stress: revise your financial plan
While experts say now is not the time to make emotional investment decisions, that doesn’t mean an investor should continue the status quo.
“I think it’s a good time to review their financial plan, their risk tolerance and their portfolio.” Said Kleintop. “If they lose sleep because of it, then their portfolio is probably too risky. Unfortunately, such events are common. “
Ehrlich, a NJIT professor, said investors “should acknowledge that these surprises will happen” and should not try to adapt to each one.
“There will be bad events, and wars, and disruptions, and even terrorist attacks and anything,” he said. “You need to make a portfolio with which you can live and sleep at night.”
He said the downturn in the market was an opportunity to “know yourself and your risk tolerance”, but “people forget to change their financial portfolios when the market revives, and it can cause a lot of stress”.
New investment opportunities
It is also a time when other investment opportunities are becoming the focus, both in the short and long term. Kleintop said green stocks make sense, as there is now an even bigger reason for Europe to move away from fossil fuels. Cybersecurity can also be a good bet as the threat of cyber warfare grows. Agriculture also makes sense, as some producers may intervene and fill the gap caused by reduced wheat supplies from Ukraine.
And while experts say the near future is virtually impossible to predict, there are some signs that political turmoil could halt the Federal Reserve Council’s expected rate hike, Meziani said.
Moesian also said the war is unlikely to spread to the rest of Europe, reducing its impact on the economy and the stock market, and a quick rebound “tells you it’s a really short-term event.”
“And 401 (k) is, by definition, a long-term investment,” Moesian said. “We can’t mix a short-term event with a long-term investment – even for those who are going to retire.”
Abbot Coloff and Jean Rimbach are investigative journalists for NorthJersey.com. To get unlimited access to their security work that protects our communities and democracy, sign up or activate your digital account today.
Email: koloff@northjersey.com – E-mail: Rimbach@northjersey.com
Twitter: @abbottkoloff – Twitter: @jeanrimbach