Don’t Let The Russia-Ukraine Conflict Rattle Your Investment Strategy

The headlines relating to this humanitarian crisis are very upsetting at many levels. At times like this, it is easy to extrapolate your concern and start to worry about your investment portfolio. Sadly, a conflict like this can often lead to more stimulatory impacts on economies as governments spending increases — this is a known fact to professional investors. However, as shown below, not many are concerned from an investment perspective.

At this stage, we have very limited exposure to the area in your portfolios as we have highly diversified portfolios and we are comfortable with the risk management strategies we employ. It has been a while since portfolios have retracted so we thought it a good idea to illustrate these points again.

Many nations have announced a range of sanctions in response to Russia’s actions. Over the coming weeks there will be a lot more information, analysis and views on the implications of the situation, so you are likely to see a lot more commentary. However, keep in mind that at this stage, the event is focused on Russia and Ukraine and so there is unlikely to be much flow-on effect to global economic growth. 

Limited Exposure

As a picture is worth a thousand words, here’s the exposure to Russia in our portfolio with the most exposure to shares - The Lifetime Asset Class Series 98/2 portfolio.

Even though the exposure is very low, we have found that in the past events like this have only had temporary impact. 

 
Risk Management Strategies

• The main way that markets work is that they don’t like uncertainty. After rising tensions in recent weeks, the announcement of the invasion and headlines of NZ shares falling 3% was quite possibly a point of ‘peak uncertainty’. While there remains plenty to watch, overseas share markets have since recovered their losses following Russia’s recent moves. In the US, the overall share market finished overnight trading up 1%. The NZ share market has followed by also opening Friday’s trading up 2%.
• Your portfolios have built in ‘shock absorbers’ that help offset short-term ups and downs. This doesn’t take them away but stops them from being as big as they might have been.
• The fixed interest investments in our funds help buffer returns. Not only are their returns more stable, but higher investor demand for fixed interest investments like bonds typically means they rise in value when shares are weaker.
• As a small, open economy, the NZ Dollar tends to fall when markets are ‘stressed’. This increases the value of overseas investments when they are converted back to NZ Dollars, helping offset some (if any) weakness in overseas shares.
• In some portfolios, core funds invest into direct holdings in NZ land and businesses, diversifying away from listed share markets. These investments are less affected by short-term market wobbles.

We're Here To Help

There remains much to consider as developments come to light, which we will be closely monitoring. This is not an event that suggests investors should change their long-term plan. The best thing you can do is to sit tight and ride it out. Investment is a long game, which is why sticking to a well-chosen plan that suits your financial goals and is the best action to take. 

If you are concerned about your ability to achieve your financial goals, or unable to pass the 'sleep test', then it is essential we catch up immediately.

Reach out to your Lifetime Adviser direct, or via our Client Care Centre on clientcare@lifetime.co.nz.