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Financial Update: The Ukraine Crisis

Updated: Jun 16, 2022

Dear Clients and Friends,


Over the past week, we have fielded many calls and emails from clients inquiring about the war in Ukraine’s effect on their personal finances and investments. Clients are also curious as to what we are doing to prepare for these effects. We thought that it would be prudent to send an update to all clients, whether you check your portfolio daily or once a year during our review, in which we will answer some of the frequently asked questions that we’ve been receiving in regard to the conflict.

First, we want to recognize the devastating and unnecessary loss of life and pray for an end to the violence as soon as possible. On this note, we want to share that MORWM, along with Commonwealth and Fidelity, will no longer be trading in Russian-based securities in order to do our part in applying pressure on Putin to end this senseless invasion.

Now, with sensitivity to the human aspect of this topic, let’s turn our attention to the financial side of things. The first and foremost question we are obviously receiving is: how is this going to affect my investment portfolio? The honest answer: most likely, not very much at all. Our direct investment in Russian securities is virtually zero percent. [1] Furthermore, let’s take a look at the chart below, which shows the S&P 500’s reaction to major geopolitical events of the past.

[1] Our exact allocation is still being computed; however, our preliminary analysis shows a de minimis investment in Russian securities at the most. With confidence, we can say that our investment is below 1%, but it is likely lower than that.



[1] Our exact allocation is still being computed; however, our preliminary analysis shows a de minimis investment in Russian securities at the most. With confidence, we can say that our investment is below 1%, but it is likely lower than that.




The chart demonstrates that the market’s reaction to geopolitical events tends to have the most impact in the first few months; on average, the market is higher after 6-12 months.


The world that we live in is interconnected to an unprecedented degree, and the rapid collapse of the Russian economy will certainly have contagion effects. Russia’s largest export is petroleum, and their largest trade partners are China and the EU. Russia mostly imports industrial materials, the majority of which come from Asian and European countries. The largest effect by far that this war will have on American consumers will be at the gas pump. Oil prices have already risen almost 100% over the past year from the supply chain issues caused by the pandemic. On top of the problems with the supply chain and an almost 7.5% rate of baseline inflation, this impact on oil prices is troubling news. What can we do to prepare?


Here is the good news: when we run clients’ financial models, one of the many stress tests that we run is higher-than-expected inflation. While we do not forecast that inflation will stay above 7% for the long term, we also do not believe that high inflation is “transitory.” In most clients’ models, we ask ourselves what would happen if inflation ran anywhere from 1 to 1.5% above the long-term average, so that we can plan accordingly.

The fact of the matter is that disruptions in the market due to geopolitical events tend to be short-lived. Markets will follow the fundamentals over the long term, and the fundamentals are strong. The economy continues to grow, and while our geopolitical concerns are rising, our COVID concerns are waning, and Covid has far more potential to disrupt economic recovery. Clients should expect to experience much higher-than-normal volatility for the foreseeable future, but consider this: “You make most of your money in a bear market; you just don’t realize it at the time.” This quote from Shelby Davis, a famous value investor, highlights the fact that times like these present an opportunity for prudent investors - if we have the emotional fortitude to filter out the noise and focus on the fundamentals.


The key takeaway is that, as investors and as citizens of the world, we should be much more concerned with the humanitarian aspect of this invasion than its financial effect. Rising oil prices and soaring inflation will likely have the largest effect on American consumers, but we have been, and always will be, planning for this in clients’ financial models. Again, we do not wish to dismiss the tragic loss of life that is being experienced in Ukraine, but as financial counselors, we would be remiss if we did not examine the effect that this situation has on our clients’ finances.


Please consider donating to UNICEF’s drive to provide Ukrainian children with access to safe water, nutrition, health care, and education, or visit NPR’s article, which highlights various charities and what they are doing to help.


 

Daniel Levinson, CFP®

Financial Planning Associate


MOR Wealth Management, LLC


1801 Market Street, Suite 2435

Philadelphia, PA 19103

P: 267.930.8303 | c: 856-906-4888 | f: 267.284.4847 |

daniel.levinson@morwm.com | www.morwm.com



The majority of this content was written and distributed MOR Wealth Management, all rights reserved. Securities offered through Commonwealth Financial Network, Member FINRA/SIPC. Fixed insurance products and services offered through CES Insurance Agency.

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