
Jeff Brindley/
Over the past 30 years Europe has lived in relative peace and cooperation. With the invasion of Ukraine there has been an incredible shock to this system of cooperation and world order. As of this writing there has been incredible loss of life, shattered international peace accords and economic damage has taken place on all sides.
The one ray of hope that has come out of this crisis is the fact that the European Union has united together along with the US and NATO. Western democracies haven’t been this closely aligned since the aftermath of the September 11 terrorist attacks. The question is will the new European unity continue once the Russian threat has passed? I believe it will. Many countries have already committed to new defense spending to guard against future incursions/invasions. This is a huge change in policy in just a couple of weeks.
With all of that said, the events in Ukraine will definitely effect the European economy more than the US economy. Although the US economy will not come away unscathed. The US was already experiencing 7.5% inflation and with further increases in energy prices that will add to the prices of just about everything US consumers buy. That robs consumers of purchasing power and will further increase inflation and will likely increase the possibility that the US is pushed into a recession by the end of 2022 or early 2023. According to US Economist Darrell Spence he predicts the possibility of a recession in late 2022 or early 2023 at 25 – 30%.
On the up side, some market participants are wondering if all of these events may give the Fed reason to keep interest rates near zero or at least raise rates at a slower pace than they originally expected. It is my belief that the Fed will raise rates at their March 15-16 meeting to combat inflation but the question is by how much. We will see how that plays out about the time this article is published.
Now on to the market and how it has reacted to these events. In the early stages before the actual invasion the market was already dropping in anticipation of some sort of limited invasion or incursion into Ukraine. That was already baked into the market pricing. However, there were very few market participants that predicted the extent of the invasion from Russia. That is when the market became extremely turbulent going down one day and then up the next. The markets couldn’t anticipate how this would play out and it appears that this will continue for some time. Events are changing daily and generally speaking the markets do not like uncertainty.
So how should you proceed with your investments? First of all you should be working with a financial professional that can guide you through these tumultuous times. Taking advice from neighbors, friends, or family generally does not serve an independent investor well. The general advice in times like these is to stay calm and evaluate your portfolio. Is it currently set up for your goals and intentions? Is each account set up properly for what you are trying to achieve for that account. Each account should have its own goal, objective, timeline and risk tolerance. If you are committed to long term investing and do not plan on taking money out of your account in the short or medium term then you should likely stay the course with that investment. That is assuming that your account is diversified and already set up with the proper risk tolerance.
Medium term investments are investments that you intend to use within 3-10 years. These are investments that may have enough time to recover from a downturn but should still be invested moderately conservative so that you do not experience any large losses. As with the short and long term investments the medium term investments should be well diversified. They should also have some downside protection in case the market drops due to something unexpected. Since this type of account is in the middle between the short and long term investment, special consideration and counseling should take place before making decisions with this type of account. Of course your timeline for taking money out of this account is very important as is your overall risk tolerance and purpose for the account. An account with a medium term timeline may need some adjustments to make it a little more conservative in an effort to preserve capital.
Short term investments may need to be handled a little differently. Short term investments are for funds that you intend to use in the next 0-3 years. If you are planning on using money in a short term investment then you don’t want your account to lose large amounts just before you plan on taking your money out. Short term investments should already be set up in very conservative positions. This way, even if the stock market has a large drop in value then you will not experience a loss in value or you will experience a very small loss in value in your account. Depending on your situation in a short term investment you may want to move more risky positions into something safer until the market calms down. Again, I recommend you always talk to your financial advisor before making any decisions on your accounts.
We have been through a lot over the past two years with the Covid pandemic. Now we are seeing chaos in Europe with the invasion of Ukraine. All of this has driven up inflation worldwide. Originally governments were predicting that inflation would readjust back down once the pandemic was under control. Now, all bets are off. The invasion of Ukraine has already pushed energy prices up at a dramatic pace. Transportation costs alone will drive up the cost of everything we buy. As my grandmother always said, “Put a little away for a rainy day.” I think we have hit that rainy day and it will be important for everyone to watch over their investments and spend prudently over the next couple of years.
Jeff Brindley is a financial advisor at RWS Financial Group. He contributes his financial column Brindley’s Briefs to GazetaDiellievery month. You can reach him at 833.797.4636 X137 or via email at Jeff.B@RWSGroup.org.
Securities offered through Registered Representatives of Cambridge Investment Research, Inc. a broker-dealer, Member FINRA/SIPC. Jeffrey Brindley, Investment Advisor Representative, Cambridge Investment Research Advisors, Inc. a Registered Investment Advisor. RWS Financial Group is not affiliated with Cambridge Investment Research.



