Got $100,000 to spare? If so, do the opposite of what happened in Russia over the weekend — don’t make any sudden moves.
U.S. stocks were mostly treading water Monday after a dramatic weekend in Russia when Yevgeny Prigozhin, leader of the mercenary Wagner Group, marched to the outskirts of Moscow, Russia’s capital, threatening the decades-long rule of Russian President Vladimir Putin, before retreating less than 24 hours later.
What should you do with money sitting in your bank account? Take that theoretical $100,000. Where should you invest it — or stash it? Should you be worried by the latest events in Russia, which some commentators say could spell the beginning of the end of Putin’s iron-grip hold on power?
“‘The world is in constant turmoil and despite world wars, civil wars and the rise of authoritarianism throughout history, markets move upwards over time.’”
First, some basics. Review your portfolio and don’t change your current investment strategy if you and your financial adviser are happy with it, analysts say. Dividend growing stocks typically outperform all other categories. Do not sell into a market pullback, if there are further developments in Russia that leads to a selloff on U.S. markets. Geopolitical uncertainty is not new, and neither is stock-market volatility.
“As disruptive politically as the attempted coup is, it’s important to remember that the Russian markets don’t even reach the 1% level of world market capitalization,” said Lorraine Ell, chief executive and senior financial adviser of Better Money Decisions, a financial advisory firm near Albuquerque.
“The world is in constant turmoil and despite world wars, civil wars and the rise of authoritarianism throughout history, markets move upwards over time,” she said. “Stay invested, diversify broadly both in the U.S. and internationally and find the right risk level for your particular situation. The classic approach beats any knee-jerk reaction.”
Don’t unnecessarily overhaul your investment portfolio
Greg McBride, chief financial analyst at Bankrate.com, agrees that you should make no sudden moves. “Invest your money the same way this week as you would have last week, or the week before. If you overhaul your investment portfolio every time there’s any kind of turmoil in the world, you’ll just spin your wheels,” he told MarketWatch.
Instead, he said it’s a good opportunity to revisit the basics. “Maintain a proper emergency fund to cover unplanned expenses and let your investments — whether for retirement or other long-range goals — do their job of compounding returns over a period of many years. Markets reward patient and disciplined investors,” he added.
Consider safe havens like gold, and other commodities
Some analysts suggest an escalation in the Russian crisis and a growing question mark over the future of Putin’s leadership could lead to a rise in so-called safe havens — such as gold, which typically performs well during periods of uncertainty — and leads to a softening in the stock market. Investors don’t like uncertainty.
“I would be very nervous to be invested in oil and gas right now with pending volatility between the controlling players, and [would] feel under-allocated to global energy future if I wasn’t exposed to lithium and copper especially,” said Will McDonough, co-founder and CEO of EMG Advisors.
“‘This duress will speed up the adoption and investment into other sources of energy, and drive prices for lithium, nickel, copper and cobalt up as supply and demand imbalances deepen.’”
McDonough said he tracks what he terms the modern equivalent of OPEC — “countries with global supplies of lithium and copper, and the global movement away from dependence on unfriendly countries for global energy.”
“This duress will speed up the adoption and investment into other sources of energy, and drive prices for lithium, nickel, copper and cobalt up as supply and demand imbalances deepen,” he added.
Look at stocks with high return on equity, low leverage
Mark Dizard, chief investment strategist at PNC Asset Management Group, said, “Given an ongoing war with Russia and Ukraine, global monetary policy tightening, higher than targeted inflation, and a possible recession facing the U.S. and other developed market economies, we continue to like quality exposures across equities,” he said.
“We define this as companies that have higher return on equity, lower leverage, and more consistent earning profiles,” Dizard added.”Geopolitical and other risks also see us favoring large cap over small cap. Within fixed income we are focusing on core exposures avoiding credit like high-yield and leveraged loans.”
“‘Geopolitical and other risks also see us favoring large cap over small cap. Within fixed income we are focusing on core exposures avoiding credit like high-yield and leveraged loan.’”
Dizard said people should not wait for big news to break before getting an investment plan, and should know how comfortable they are with risk. If you are uncertain, use the events of last weekend as a gauge. “Upon learning the news did your mind immediately think how far your portfolio might have gone down? If so, it might be time to revisit how much exposure to financial markets you are bearing or if your exposures are correct.”
Defense and energy stocks should benefit from Russian unrest
Paul Karger, co-founder and managing partner of TwinFocus, a wealth advisory firm for ultra-high-net-worth individuals and families, said Russia is now viewed as largely an uninvestable location, given last year’s invasion of Ukraine. “Looking outside of Russia, companies in defense, energy and commodities could benefit from continued unrest,” he said.
“Defense companies tend to be ‘recession-resistant’ as defense spending is often seen as necessary despite economic downturns,” he added. “They also tend to have lower debt levels, strong cash flow and strong balance sheets. The defense sector is expected to continue to grow given greater geopolitical concerns and global threats, and countries’ desire to bolster their militaries.”
“On the energy and commodities front, Russia has historically been a large producer of oil and gas, metals, minerals, and agricultural products,” Karger added. “Cutting Russia off from the rest of the world via sanctions, should only help to benefit prices of such.”
Crypto versus cash? Tread very carefully with the former
Tread carefully with highly volatile assets like cryptocurrency, analysts add. Bitcoin
BTCUSD,
an asset that trades 24/7, was broadly flat at $30,357. Still, the leading crypto is up more than 10% since the start of this month in relatively low liquidity — a fact that some analysts attribute to BlackRock
BLK,
the world’s biggest money manager, recently filing papers with the Securities and Exchange Commission seeking regulatory approval to create a bitcoin ETF.
With high interest rates, financial advisers say it’s still a good time to stash your cash. You can get annual percentage rates of up to 4.9% at CIT Bank, a division of First-Citizens Bank & Trust Co. with a $5,000 minimum balance. Other institutions are offering APRs at over 4%, including Citizens Access, an online bank, which is offering an APR of 4.5% with no minimum balance.
“‘Defense companies tend to be ‘recession-resistant’ as defense spending is often seen as necessary despite economic downturns. They also tend to have lower debt levels, strong cash flow and strong balance sheets.’”
Marko Papic, chief strategist at Clocktower Group, said the market response to the attempted coup in Russia would be muted. He said the imminent Chinese stimulus “and the ongoing strength of the U.S. economy – despite all the doom and gloom recession calls — are far more relevant to oil prices and commodities than short-term political machinations within Russia.”
One lesson: “Second and third order effects are difficult to predict, but are critical for markets,” he wrote in a note Monday. “Lots of people predicted Russia’s invasion into Ukraine correctly. We didn’t. But, once the invasion happened, we shorted bonds immediately –– a controversial, to put it mildly, trade recommendation given their supposed safe haven status.”
“While we remain sanguine on the issue of the war in Ukraine and believe that both sides are exhausted and unlikely to make headway, the geopolitical alpha is no longer available to be harvested. The ‘easy wins’ are gone,” Papic added. “Geopolitical risk premium does not appear to be embedded anywhere.”
The Dow Jones Industrial Average
DJIA,
the S&P 500
SPX,
and the Nasdaq Composite
COMP,
all closed lower Monday. The Nasdaq shed more than 1%.
Related: This analyst warned of a mutiny against Putin last year. Here’s what he thinks might happen next in Russia.
