Geopolitical tensions

A new dimension of risk has entered the financial markets with heightened tensions in Ukraine. It’s not something the markets needed when they were already dealing with brisk inflation and preparing for an expected cycle of interest rate hikes from most of the world’s central banks.

 

We know this, however, about equity markets in the context of geopolitical risks: they’ve been resilient, much as markets have always been resilient in the face of various risks. We expect the markets to work themselves out, reaching new heights over time and at varying paces. These rises will sometimes be punctuated by sharp declines. This is how it works. For context, the chart below shows the response of markets to some previous crisis.

 

Geopolitical sell-offs are typically short-lived

Geopolitical sell-offs are typically short-lived

 

So now is not the time to give up your fortitude. Now is the time to take it all in with a deep breath, knowing that this day would come—and knowing that it will pass.

 

In the meantime, if the markets throw your mix of stocks and bonds out of kilter, you may have a good opportunity to restore them to your desired state. Rebalancing is a useful strategy for ensuring that your asset allocation continues to suit your goals.

 

The general message however, remains the same. Stay invested and weather the storm.

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