How To Improve Your Portfolio Strategy Amid The Russia-Ukraine Conflict

Key takeaways

• The Russian invasion of Ukraine has led to instability in global financial markets, including stocks, bonds and commodities
• Various countries (including the U.S.) have imposed sanctions on Russian energy exports, banks, tech, and investment assets

The Russia-Ukraine conflict has dominated headlines since Russia made their intentions to invade their closest neighbor apparent on the world stage. As the situation unfolds, investors remain on edge about how the situation will affect their portfolios.

And for good reason: Already, Russia has endured sanctions, commodity prices have risen and stocks have slipped. Week over week, many major indices continue to post losses due to global and local market volatility.

While such stock price action can bridle the nerves of even the most stoic investors, it’s generally best to stay the course. But that doesn’t mean there isn’t room for improvement in your portfolio strategy. (Especially if the situation highlights potential weaknesses you’d previously overlooked.)

If you’re worried about improving your portfolio strategy amid the Russia-Ukraine conflict, here’s what to know.

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5 things to know as stocks navigate Russia’s invasion of Ukraine

As global powers grapple with the sudden invasion of Ukraine, assets across the spectrum have ruffled amid geopolitical tensions.

1. Sanctions are at hand.

In the last few weeks, multiple countries (including the U.S.) have banned imports of Russian oil, natural gas, and coal. Meanwhile, the U.K. has pledged to phase out its reliance on Russian energy imports, while the EU has proposed new plans to diversify its energy supply.

Other sanctions and controls have targeted Russian:

• Banks
• Tech
• Investment assets
• Sovereign debt and equity
• SWIFT systems (the global financial messaging system that facilitates financial payments)
• Oligarchs and businessmen close to Putin

2. Energy supplies will shrink.

Russia remains one of the world’s largest producers of key commodities, including energy, certain raw materials, and agricultural products. While the United States has enough shale oil and agricultural production to sustain itself, the same isn’t true for most of Europe, which relies on Russian imports for its oil, gas, metal, and agricultural needs.

As a result, sanctions against this export powerhouse stand to send rippling impacts through commodity prices and supply chains worldwide.

3. Commodity disruptions will continue.

Ukraine and Russia are crucial sources for commodities such as oil and natural gas, wheat, sunflower oil, and fertilizers. Russia also produces disproportionate amounts of aluminum, nickel, and palladium. Supplies of some of these materials were already in short supply before the invasion—now, there’s no quick, easy fix to the inevitable global shortages.

4. Inflation may rise.

In the United States, inflation remains at a four-decade high—and sanctions against Russian imports are likely to worsen it. While it’s difficult to predict how much supply chain pinches impact inflation, what is certain is that investors fear it will impact inflation. And in the stock market, expectations play a big role in price setting. (Though most investors don’t expect the Fed will shift its planned interest rate hikes anytime soon.)

5. It’s impossible to know where the conflict will lead.

Given the vast variety of potential outcomes to the Russia-Ukraine standoff (not to mention the interference of global sanctions), it’s impossible to predict a best-case scenario. At this point, all that’s certain is that global market volatility will continue until the situation progresses or finds a resolution.

Improving your portfolio strategy amid the Russia-Ukraine conflict

Uncertainty in the stock market is always difficult to navigate, especially during situations with no easy answer. But even in dark times, investors can find silver linings.

Review your financial goals.

The first step in dealing with volatility is reviewing your financial goals. Ultimately, any changes you make should align with your long-term plan and aim to increase the value of your holdings.

Diversification is key.

A well-diversified portfolio is key to riding out tough times. Diversifying your capital into various asset classes and sectors can help you offset risks incurred in tumultuous markets. And remember: it’s not just where you invest, but how much. True diversification is the result of a balanced portfolio designed to meet your short-, medium-, and long-term financial goals.

Remember that volatility leads to opportunity.

Market volatility can be a time to capitalize on current trends. That said, you shouldn’t change your entire strategy every time the market dips. Instead, see if a few reallocations or new investments can supplement your existing strategy.

For instance, you may choose to increase your current contributions by 5% to capture long-term gains when the market rebounds. Or you may divert some capital from a lower-performing asset into a higher-performing one.

However, you should always ensure your investments suit your long-term plan (even if they’re short-term assets) and avoid the temptations of day trading.

Leave big losers behind.

It’s not uncommon for equities markets to respond to global crises—especially one as prominent as international invasion. In such circumstances, it’s prudent to watch your portfolio’s performance and identify any lagging securities. While some volatility is normal, you may want to exit any positions that underperform on a long-term curve. And, if you’re worried about long-term damage, you may rotate part of your portfolio into less risky holdings.

Avoid hasty decisions.

Balancing your long-term plan and asset allocation strategy against current market events isn’t always easy. And though it’s tempting to act on volatility to improve your returns (or avoid a loss), panicking or acting hastily is always a bad plan.

Instead, take a deep breath, review your portfolio and the market, and keep your long-term goals in mind. Then, put in the research to ensure that any changes you make will support your long-term goals. At the end of the day, it can be hard to stomach volatility—but short-term declines shouldn’t guide your lifelong strategy.

Don’t try to time the market.

Invasion or no invasion, timing the market is never a good idea. It’s impossible to predict when an investment has truly bottomed out or reached its peak, and making the wrong call can have disastrous impacts on your portfolio.

Rather, look at volatility as a time to profit in a “broad-spectrum” sense. You may increase contributions in your whole portfolio, allocate capital to a particularly low-performing sector known for historical rebounds, or use a little “fun money” to dabble in speculation.

But if you base your investment strategy around timing the market, you’re more likely to lose everything than you are to turn a profit.

Defend the position.

If you want to make a few savvy moves to directly capitalize on the Russia-Ukraine situation, you can look into U.S. aerospace and defense companies. Many of these stocks have seen substantial rises since the initial invasion. Additionally, as nations increase their defense spending budgets, more opportunities for investing in defense securities may arise.

Prepare for emergencies.

Even if stock market volatility stands to produce long-term gains, it’s still wise to have a cash reserve at hand. If the market falls and a sudden expense crops up, you may do better to spend your emergency fund rather than sell your portfolio. Remember: investing for your future is a long-term game, but short-term decisions can have major impacts.

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