You will likely have experienced a range of emotions following yesterday's news of Russia's invasion of Ukraine. Shock, frustration, disbelief, bewilderment, extreme disappointment, and above all, fear will probably have registered with you. But how concerned should you be about the impact on the world and on your finances?
It's clear that there is cause for concern. The actions of Vladimir Putin in making a decision to take a massive military strike against a neighbouring country, and one which is considered part of Europe, is unprecedented in modern times. The fact that Russia is a nuclear power, combined with Putin's stark threat to the world not to intervene, cannot be ignored. How far will he go? How will the world react?
The short answer is that, at this stage, we cannot know the answers to these questions. It seems that the decision to invade Ukraine was based on deeply held and historical beliefs about the place of that country in its relationship with Russia, and a desire to impose an - from our perspective seriously outdated - Russian ideology on a former Soviet state. The fact that the world has moved on seems lost on the Russian leadership, although not so much on Russian citizens it seems, which offers a glimmer of hope. Putin's actions may well backfire on him in his own country, never mind the rest of the world. Let's hope so.
How this will play out amongst the other world nations very much remains to be seen. Financial sanctions have swiftly been put in place against a range of Russian banks, businesses and individuals, causing the country's stock market to crash by 40% yesterday before recovering slightly to close down by a third. The effect on other financial markets around the world was muted, with the UK FT-SE 100 index 3.8% down, whilst both the FT-SE 250 and US S&P indices were down by less than 3%. Markets were rising again as we write this on the day after the hostilities began.
The effect on the investments that you and our other clients hold within their portfolios is, as always, impossible to predict with any accuracy. Our investment committee have carefully constructed those portfolios to provide a satisfactory long-term return through the ups and downs of economies, politics and life in general. They will continue to review all of those circumstances, and if changes are needed then we will be in touch.
One thing that we do know is that, at times of significant uncertainty, it is natural for humans to fear the worst. For those people in Ukraine who are directly affected by the conflict, and for their loved ones around the world, we have the utmost sympathy, and our hearts go out to you. We fervently hope that a peaceful way forward can be found.
For those of us pondering what to do about our own domestic affairs, including our finances, we would caution against allowing our minds to run away with 'doomsday' thinking. We have an inbuilt 'fight or flight' mechanism in our brains designed to ensure our survival in the dangerous worlds of pre-history, but in modern times, when faced with complex multi-faceted situations, it's a mechanism that, if followed, is utterly counter-productive. Academic research, and our own experience as advisers to our clients over the last 35 years, tells us that in the financial world things are rarely as bad as they first appear, and kneejerk reactions to events invariably lead to poor outcomes. We saw this with the 2008 banking crisis and the onset of covid in recent times, and many more before those. As a long-term investor, the very best action you can take is to remain calm, take a measured view, and sit tight. If you are following your plan with the help of our team you will already have sufficient cash set aside to meet your immediate needs, you will have a portfolio that has been carefully constructed to give you the highest probability of achieving your goals, and you will have got your financial house in order.
Nothing else is required. We'll be monitoring the situation and we'll let you know if changes are needed.
As always, our teams are available if you have specific questions about your own individual circumstances, or if you would just like a bit of reassurance. You can contact them here.