As tensions run high between the U.S. and Russia over the latter’s occupation of Ukraine, many investors are worried about how this conflict will impact their retirement portfolio. On this episode, we’ll take a look at the current state of the market, stock market performance during previous wars and conflicts, as well as potential portfolio strategies that can help you weather the storm.

You will want to hear this episode if you are interested in...

• Examining the current state of the market [1:12] 
• Financial analysis of five crucial historical conflicts [3:03]
• Ways to be prepared for the potential Russian conflict ahead [10:15]

Look at the market

There are several different metrics that you can use to ascertain the current health of the stock market. While the Dow Jones average is certainly one method, I prefer the S&P 500 because we have data on that going back to 1927 that is easily searchable online. It's also a good indicator of how the stock market is doing because it represents the 500 largest companies in the United States. Currently, the S&P 500 is down 9.5% year to date and will require market correction if it hits 10%. 

However, we’ve experienced positive returns over the last three years averaging 24.01% so this current downturn could simply be the natural flow of the market. Even during the years that have ultimately turned out positive, we’ve experienced “intra-year declines” where we see drops throughout the year. At the height of COVID, we saw the S&P 500 drop as low as 30%, yet it ultimately ended the year with a 16.26% return, further proving that the current state of the market is not an invitation for drastic action but a call to be alert and prepared.

Follow the money

All the market cares about is profit. Profits are what drive the entire thing. Investors use profit information found in S&P 500 company’s fourth-quarter (Q4) reports to inform their trades and how they invest. For Q4 of 2021, 84% of S&P 500 companies have reported as of now. 78% of those companies show positive numbers across the board in their annual reports. Meaning they received more revenue and earned more profits than anticipated for the year. So it would seem most companies do have a cushion if the U.S. were to get into a prolonged war with Russia.

Another thing to consider is how many S&P 500 companies actually have exposure to Russia. To date, only ten companies would feel a direct impact if the U.S. goes to war with Russia. If none of these companies could do business in Russia, the highest revenue lost would be Philip Morris at 8%. While that may be a significant amount of money, it’s not enough to put any of these major corporations out of business. Admittedly, I don’t know the future. Things could get way worse than anticipated if war does break out. The market could also get better like when the U.S. called Russia’s bluff in Crimea. Trying to predict what’s going to happen before it happens is largely a waste of time, but there are things you can do to be prepared. Listen to this episode to learn more!

Resources Mentioned

• Yahoo Finance 
• Factset: S&P 500 (PDF) 
• J.P. Morgan S&P 500 Investment Performance Report (PDF)
• Financial Analysis of Historical Conflicts (PDF)

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