The year 2022 has not had a great start so far from a socioeconomic standpoint. The pain and suffering of the people in Ukraine is starting to reach another extreme and things do not look to calm down any sooner. The MOEX Russian Index took a nose dive because of the war situation, the ongoing sanctions and the geopolitical unease that has been caused between the global nations.
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| Source: Google Finance |
Russia is the world's third largest producer of oil and overall supplies about one-third of European natural gas consumption as per the Council on Foreign Relations. For the EU to completely move away from Russian dependence is not easy and achievable in the short term without having a very large economic impact.
Crude oil prices have shot up over the $100 price limit as we speak further making it challenging with the rising inflation for the common people. This is expected behavior and if there is any disruptions in oil exports from Russia, then this could even drive the prices much higher in the $120 range per barrel. See the correlation below between how gas and crude oil prices have moved for the prior several years.
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| Source: Bloomberg.com/energy |
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| Source: Federal Bank of St. Louis (Crude Oil vs Gas Prices) |
The moral of the story is that the markets will be bumpy for quite some time but investors should not be afraid of the turmoil. Long and hold is the strategy I believe in and recommend to my readers as well. To stress on this point, there have been numerous volatile moments if you look back in history, examples - the 2000 dot com bubble, 2001 World Trade Center attack, 2007-2008 mortgage crisis, 2020 coronavirus crisis. The S&P 500 in midst of the year 2000 was around the 1400 levels and fast forward 20+ years we are at roughly 4300 with the index. So the long and hold strategy definitely works and the index has proved that point too many times with all those events.
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| Source: Google Finance |
Gold prices have certainly picked up as its fairly common during any volatility event. This could be a good time for investors to shift some gains in Gold into equities to re-balance the portfolio. I am not a big commodities person, but I still believe it helps to diversify your portfolio. Personally, I am continuing to buy into equity indexes and loosening a bit on the cryptocurrency side of things as I see the major cryptocurrencies climbing back again.
If you are strapped on cash, I would recommend adjusting your paychecks to put a little more on your 401K and Health Savings (HSA) accounts as I believe you would be on the brighter side in the long run. Less cash always equals less spending.
Another good incentive to think about is tax returns, if you are getting money back. Hold on to the thought of getting a new car for a few months and may be put that extra cash to work. Remember you don't need to put in $1000 to buy into your favorite stock, you always have an option to buy fractional shares, think of it like buying $5 worth of a $3000 stock. A lot of major brokerage companies allow you to invest based on a dollar value.
Remember investing is a long game, so be patient and invest for your future. The key is your time in the market and not timing the market.
(Disclosure: Please review the Disclaimer section prior to any investments.)