Ukraine-Russia War: Strategies to protect your portfolio
March 21, 2022
Russia’s invasion of Ukraine has heightened volatility in stocks, bonds, commodities and currencies. While it’s important for investors to assess the economic impact and potential for future disruptions, it’s also critical to assess the situation from a rational and long-term perspective, no matter how hard it may seem today.
In this blog, we’ll walk you through how a diversification strategy can protect your portfolio against current market volatility, showcasing examples embedded in various existing Bellwether portfolios.
First, some uplifting news. An analysis of 12 past geopolitical events, including the 2003 Iraq War, 1979 Iranian hostage crisis and 1962 Cuban missile crisis, revealed that the S&P 500 was higher a year after those events nine of 12 times, with an average gain of 9%. Similarly, the S&P 500 index gained over 4,000% since 1980 and since its inception in 1957, the inflation-adjusted, historical average annual return for the S&P 500 stands at 7%. Therefore, unless there’s a recession looming in the background, it’s clear that geopolitical events tend to have a short-term impact on the markets.
There are several steps portfolio managers take to protect portfolios from risk. For instance, Bellwether clients continue to benefit from a built-in public and private market diversification strategy to cushion against market volatility. More specifically, we’ve embedded a fixed-income allocation strategy that serves to cushion corresponding volatility in the equity markets. While our fixed-income strategy isn’t risk-free, it’s served us well during the volatility of the last few years. Moreover, as we anticipate a higher interest rate environment, we’ve also increased our allocation to our Alternative Income fund, siphoning funds out of the public markets and deploying them into private lending strategies. This provides further protection to the fixed income portion of portfolios and higher yield. Furthermore, we’ve increased our allocation to Canadian equities, including Canadian banks and energy companies, which are not only trading at lower valuations (and offer higher dividend yields) relative to their US peers, but we also believe the Big Five banks will continue to benefit from various upsides, including rising interest rates and rising oil prices. To achieve even greater diversification, we increased our allocation to our Global Real estate and Infrastructure fund late in 2021, due to opportunities in this asset class and lower volatility associated with our private investments.
Crucially, we advise against liquidating assets and holding cash for several reasons (also known as market timing). Take note that inflation and rising interest rates will only chip away at your purchasing power over time, making it more important to preserve and grow your hard-earned money in a diversified investment portfolio.
In light of our robust, proven diversification strategy, our message is simple: Don’t panic. Whether you’re a short-term or long-term investor, schedule a discussion with one of our Family Wealth Advisors and ask questions to further understand the steps we’ve taken to protect portfolios from volatility and market uncertainty.
If you have any questions about your investments or would like to schedule a discussion to learn more about the impact of the current geopolitical climate on your portfolio, please contact us. Understandably, war is a challenging time for all. Our trusted Bellwether Family Wealth Advisors are here to support you and answer your investment-related and financial planning questions.