Russia and Your Retirement Plan (Article)

Russia and Your Retirement Plan

Eight years following Russia’s seizure of the Crimean peninsula, the Russian military is once again moving into Ukraine.  Known as the “bread basket of Europe” for its strengths in agriculture, Ukraine is also rich in natural resources supplying inputs to manufacturing as well as possessing some of the most important natural gas pipelines on the planet that send gobs of energy into Eastern and Western Europe.  The fear of energy supply chain disruption has caused significant volatility in crude oil and natural gas markets.  Crude oil, for example, recently eclipsed $90 per barrel for the first time since 2014.  Additionally, Russia has repeatedly expressed its apprehensions regarding Ukraine’s possible admittance into the North Atlantic Treaty Organization (NATO), an alliance established decades ago in response to cold war tensions between the U.S. and the former Soviet Union.

How this most recent spat between the West and Russia resolves itself is highly uncertain.  Well over 150,000 Russian troops armed to the teeth are preparing for what could now be a full scale invasion.  Seeking to avert further conflict, several world leaders have offered impassioned pleas to return to diplomacy. No question, the images of armored vehicles, missile launchers, and tanks are unnerving.

Heightened market volatility naturally raises questions as to what one should do with their savings, if anything, as geopolitical tensions mount.  Despite these uncertainties, we remain steadfast in our outlook for continued global economic expansion.  Corporate earnings results are still quite encouraging with the vast majority of the companies in the S&P 500 beating consensus expectations.  Elsewhere, we believe most countries have enough demand support to foster above-trend growth, even as monetary conditions tighten.  In an environment where long-term rates look poised to continue their trek higher, we favor stocks and hard assets over bonds.

In our view, the current situation between Russia and Ukraine should not serve as a catalyst for long-term investors to grow more defensive.  If anything, we advocate rebalancing which in most cases would result in slight increases to risk assets like domestic, international developed, and emerging market equities.  In other words, long-term investors can think about being contrarian.

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