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Will the Ukraine crisis affect my investment strategy?

During times of financial volatility people want to understand two things. "should I stay invested" and/or "shall I still invest". We take a look at some of the theory behind the secret recipe to investing whilst things are going on in the world that effect the markets, like the crisis in Ukraine.

Check out our Guide to Investing

You aren't alone, we all worry about money during times of crisis

The world feels out of balance at the moment. Russia’s devastating and ongoing attack on Ukraine has affected people and businesses across Europe and the entire globe. Every day we watch the images of Ukrainian people fleeing their homes, Russia’s financial system is being hit with severe sanctions, there is increasing involvement from other nations and ofcourse it is only natural that this impacts on the financial markets.

At times like this it is normal for any of us to feel cautious about everything around us, especially how it will impact on us financially. Worries about money then impact other areas of stress in our lives. It is easy for big businesses and the media to say, “remain calm” or “avoid making any rash decisions about your investments”. We understand how you feel, after all we are living it too and many of us at Unividual are investors also. In this article we want to do everything we can to reassure you when it comes to planning your investments in times of volatility. The benefits of financial planning are never more real than during turbulent times.

Should I disinvest and move my money in to cash?

When markets are volatile your first thoughts will be “should I stay invested?”. There is a temptation to put all your investments in the “relative” safety of cash. Some people see it as a “safe bet”.  It is tempting to exit or switch to cash to reduce further expected losses. The irony is though if your money is in a long-term investment and the markets fall, you actually realize any loss by disinvesting instead of keeping your money invested and allowing the markets to recover. No one knows when the markets are going to recover and being out of the markets for just a few days can have a devastating effect on returns.

Before the period of market volatility I was thinking of investing, should I still do so?

In times of market volatility it is natural to feel cautious. At the time of writing, the cost of purchasing units within an investment is lower than three weeks ago. If it was right for you to invest your money three weeks ago, then continuing that investment means you will be purchasing more units at a cheaper price. If history has anything to go by, the markets will bounce back at some point, which will have a positive impact on the value of your investment.

The alternative is to keep spare cash in the bank, but keeping spare money in a bank account can actually cost you. In recent years we have seen higher rates of inflation and lower rates of interest on cash. The pressure inflation places on cash can be debilitating, at just 2.5% inflation an investor would lose nearly half of their purchasing power over 25 years. This means that £10,000 today would have the purchasing power of £5,394 in 25 years’ time. In the long-run not being invested can actually be riskier than being invested. This information was taken from our article Seven Tips for Investing in Volatile Times.

The importance of diversity in investments

If markets are fluctuating wildly it is understandable and human nature to worry about the performance of your investments but this can mean you forget about the bigger picture and long-term goals you set in place for that investment. When it comes to investing the old quote “one tree with stunted growth doesn’t necessarily mean the rest of the wood isn’t thriving” comes to mind, a diversified portfolio can help iron out ups and downs in the markets.  There are differences between geographical markets and diversity in this area can reduce short-term volatility. If you are a client of Unividual or another financial adviser, investment experts across the finance profession are closely monitoring possible outcomes and what they will mean for you and your investments – not only in the short term, but also the longer term too.

Investors who ride out volatility have seen recovery

No one knows with certainty when markets rise and fall.  From the Lehman Brothers collapsing in 2008, through to the Twin Towers attack in 2001, Brexit and the COVID recession, the markets face uncertain times on an ongoing basis. Historically, investors who have been willing and able to ride out the periods of decline in markets, have seen their investments recover. Additionally, by investing sooner and longer you can improve your potential for healthy returns and achieve your financial goals, regardless of short-term “blips”.

To understand more about investing and saving why not take a look at our Investment Planning Guide

The value of investments and the income they produce can fall as well as rise. You may get back less than you invested

Author & Editor: Cherie-Anne Baxter

Date: 17/03/2022

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