Authored by Schneider Downs Wealth Management’s own Miles Gibson, a former Active Duty Intelligence Officer in the U.S. Marines. Miles continues to serve as an intelligence officer in the U.S. Marine Corps Reserves.
Russia began an invasion into Ukraine early Thursday morning, creating a humanitarian crisis and a whirlwind of global economic uncertainty. A significant amount of activity has transpired since that time, and it is still developing as this piece is being written.
The overall intent of this message is to provide some information as to the conflict between the two nations, how it impacts the world economy and investments, an outlook of what to expect moving forward and lastly, what it means for your retirement saving strategy. It is important to note that this is an ongoing and evolving situation being played out, and that we at Schneider Downs Wealth Management Advisors are monitoring it very closely.
What happened?
Over the past three months, Russia built up a large military presence along the border of Ukraine, threatening an invasion. The world watched closely, contemplating whether President Vladimir Putin would conduct an invasion into a sovereign nation. Commentators have declared Putin’s aggression into Ukraine as an invasion which the world has not seen since Germany invaded Poland in 1939, starting World War II. Leading up to Russia’s military build-up, the United States and several European nations threatened Russia with diplomatic sanctions to avoid an armed conflict, specifically the cancelation of the Nord Stream 2 pipeline.
This pipeline is a 1200-kilometer pipeline that runs under the Baltic Sea from the Russian coast to Germany, which was completed in September of 2021. This was an $8.4 billion dollar project that would increase natural gas production and dissemination. To date, Russia is responsible for nearly 40% of Europe’s natural gas imports. Russia’s decision to invade Ukraine has caused global energy and commodity sectors to react during this conflict. (BBC, February 22, 2022)
What is happening now?
Russia invaded Ukraine with heavy mechanized infantry and troops, entering the country from numerous points of entry, conducting airstrikes against dozens of cities, including the capital of Kyiv. Most of these airstrikes have targeted airfields, government buildings and military installations. President Vladimir Putin ordered a military invasion with the intention to regain control of territory once belonging to the Soviet Union and to deepen their Russian influence on Western Europe. As of Monday morning, Russian Forces were still moving toward Kyiv.
The Ukrainian people continue to defend their land, stalling Russian forces operationally. Russian and Ukrainian leadership met earlier this week, which prompted the speculation that an all-out war may not be the end state. The meetings were unsuccessful, with it being reported that the Russian government was demanding too much. Leadership from both nations are set to meet later this week for a second time, which will be monitored closely. (WSJ, 2022)
How does the Russian invasion affect the world economy?
The U.S. and international markets reacted rapidly upon Russia’s invasion, causing investors to rush to safety, with oil, commodity and gold prices soaring. Domestic and international stocks have seen steep selloffs in the recent months as the Russian buildup began, along with rising inflation and supply chain crises. Oil prices reached an 8-year high as of Thursday morning, at over $100 a barrel.
With Russia being one of the largest suppliers of energy and key commodities to the global economy, their invasion resulted in higher prices for each. In response to Russia’s invasion, the United States and other European nations levied a number of sanctions against Russia earlier this week and are likely to impose more vigorous sanctions as a result of Russia’s full-scale invasion. Specifically, the United States and Western Europe removed Russian banks from the Swift Network over the weekend. This is the world’s largest messaging data system for cross-border transactions.
And secondly, sanctions have been imposed on Russian commercial and central banks. These sanctions put significant pressure on the Russian economy; however, the important concept to remember about sanctions is that they tend to ricochet back against the nations that impose them. The question will be how much pain are Europe and the United States willing to endure in order to punish Russia? It’s very clear that U.S. and International markets will be affected, especially with the already existing pressure of inflation and supply chain issues. (WSJ, Russian Attack on Ukraine Roils Markets, 2022)
Investing During Uncertain Times
When reading the news and assessing the way the markets have moved, are moving currently and likely, how they’ll move in the short-term, you might be asking yourself, “What should I do?” Remember that retirement investing is a long-term plan and that during your working life, significant events will occur, causing substantial market volatility, which is usually short-term. Investors who make short-term decisions based on emotional reactions are susceptible to missing their long-term retirement objectives and goals.
Reassessing your portfolio during these times of market stress with minor adjustments to asset allocation percentages might be prudent. Those with a longer time horizon may want to increase contributions during these periods of market stress to “buy” more at a lower price. As always for individuals who are closer to retirement, this might be a time to have an active discussion with one of your SDWMA 401(k) advisors.
Schneider Downs Wealth Management Advisors, LP (SDWMA) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). SDWMA provides fee-based investment management services and financial planning services, along with fee-based retirement advisory and consulting services. Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as investment, tax or legal advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice. Registration with the SEC does not imply any level of skill or training.
