War returns to Europe
As we learned the news of Russia's invasion of Ukraine this past Thursday, we yet again were left grappling with our vulnerability to the madmen of the world. Those who sabotage other's freedom are the antithesis of what we stand for in America.
Russia's "might makes right" authority echoes many historically unjust takeovers, not least of which was the Holocaust. Ironically, Putin claims he wanted to "denazify Ukraine," which is ludicrous considering the democratically elected president of Ukraine, Volodymyr Zelenskiy, is Jewish and happens to be a descendant of Holocaust survivors. Appalling.
So, as we approach the exit of the global health crisis and ongoing economic tragedy known as Covid-19, we find ourselves caught in a Cold War redux triggered by long-simmering territorial tension that could unfold into a world war. As a result, market strategists must consider all possible scenarios.
The end of the bull market?
Investing today involves weighing multiple primary risks. For example, investors' response to this unfolding war is not the sole factor in their decision-making process. Instead, they must consider the Russia/Ukraine conflict along with sky-high inflation numbers and fiscal contraction, which could potentially be a triple whammy to the bull market.
As the saying goes, all good things must come to an end.
Thus, what worked before may not hold now since investing during economic contractions requires strategic allocation. Therefore, adapting your portfolio, not to mention your pocketbook, is a must.
Take Facebook, I mean Meta, as a case study. Just last year, their fortress looked impenetrable. However, the tides have reversed, and many are shunning Meta for alternative contact mediums. As a result, we are watching U.S. Blue Chip companies like Apple, Amazon, Google, and Microsoft become vulnerable to innovative disruption despite prior dominance.
Trends change
Trends can come quickly and change the power players of the market overnight. Technological innovation is flipping everything on its head, and younger generations see the world through a different lens. Therefore, the companies that meet the changing needs of consumers, young and old, and deliver consistently, will be tomorrow’s winners.
While picking winners may seem daunting, and thus relying on bonds and cash may feel like a safe haven in a world seemingly going down the slippery slope to hell in a handbasket, you're sure to see your principal at risk as rates and inflation rise. After all, the Fed will likely raise rates in March and continue to do so through 2023.
Consequently, investors hoping to grow their funds will do better by sticking with stocks over the long haul.
Allocate At Your Own Risk ------ RISK ON OR RISK OFF?
It's critical to invest in companies that will flourish in times of uncertainty. The Consumer Staples sector, for example, is a solid place to get footing when everything feels topsy turvy.
Tech stocks, formerly the bee's knees, are now vulnerable due to the era of rising rates. And notably, they comprise a large part of the broader indices, and we've seen the S&P go down 8% year-to-date; the tech-heavy NASDAQ is down 12.47%, comparatively.
If you can buy blue-chip companies at a discounted price, it may also be a good place to hunker down.
Diversification for the win
Some of you may disagree with me, but as much as I love them, there is more to investing than stocks and bonds.
The ultra-wealthy are keen on alternative investments, and so should you be. It's not likely you can access the same opportunities as the Bill Gates and Elon Musks of the world, but we can learn from their example. Complementing your stock investing with alternative asset classes not only helps protect your principal in times of market turmoil, but alternative investments can also often provide other advantages such as tax benefits, estate planning strategies, etc.
Furthermore, real estate and commodities are examples of alternatives that add complementary diversification to your portfolio while historically helping performance. Notably, Bill Gates is the largest farmland owner in the United States.
Important
With crisis comes opportunity. Don't be so depressed with the bad news to not notice the opportunities that often come in challenging times. 2022 will undoubtedly bring us periods of extreme volatility, and momentum is a growth investor's best friend. Use it to your advantage.
Think of how a surfer rides the waves so powerfully and gracefully. Be firm in your footing, and ride the coming waves.
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Beyond prayer
Remember that you can be charitable with your investments as well. Please let me know if you want to explore philanthropic planning ideas that can harness your wealth to impact the world positively.
Here are the recent CPI numbers that are truly historic:
Source: https://www.bls.gov/cpi/
All items 7.5%
Food 7.0%
Food at home 7.4%
Cereals and bakery products 6.8%
Meats, poultry, fish, and eggs 12.2%
Dairy and related products 3.1%
Fruits and vegetables 5.6%
Nonalcoholic beverage 5.0%
Other food at home 7.4%
Food away from home 6.4%
Full service meals and snacks 7.1%
Limited service meals/snacks 8.0%
Energy 27.0%
Energy commodities 39.9%
Fuel oil 46.5%
Gasoline (all types) 40.0%
Energy services 13.6%
Electricity 10.7%
Natural gas (piped) 23.9%
All items less food and energy 6.0%
Commodities less food/energy 11.7%
Apparel 5.3%
New vehicles 12.2%
Used cars and trucks 40.5%
Medical care commodities 1.4%
Alcoholic beverages 2.7%
Tobacco/smoking products 7.0%
Services less energy services 4.1%
Shelter 4.4%
Rent of primary residence 3.8%
Owners' equivalent rent 4.1%
Medical care services 2.7%
Physicians' services 2.6%
Hospital services 3.6%
Transportation services 5.6%
Vehicle maintenance/repair 4.8%
Motor vehicle insurance 4.1%
Airline fare 4.9%