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Is the Crimean Peninsula Driving your Investment Strategy?

The unrest in Ukraine, the ouster of the country’s Prime Minister and the subsequent invasion by Russia into the Crimean peninsula has dominated the news over the last month.  The standoff shows no signs of abating with the US and European leaders threatening to implement economic sanctions against Russia and Russia responding that those moves would be counterproductive and refusing to back down.

At the first announcement of possible sanctions against Russia bonds and commodities jumped up while stocks sank. However, as it has become clearer that Russia is not attempting to escalate the crisis at the moment, world markets have restarted their upward march.

In August, tensions in Syria dominated the news after alleged chemical weapon attacks took place in the ongoing civil war that has ravaged the country.  The US threatened to retaliate and as a result equity markets sank and fixed income bounced over the potential fallout from such a move.  After negotiations Syria agreed to disarm their chemical weapons and equity markets recovered.

These are two recent instances of shocks to global markets.  Both had only temporary impacts to date.  When the next crisis will explode is anyone’s guess.  While we certainly think about these events and monitor the latest developments we do not let temporary market shocks drive our investment strategy.  We believe it is more productive to develop an investment plan based on an individual’s or organization’s risk tolerance and goals.  Included in this, is how one might react to a large swing in value due to geopolitical unrest.  Those that can tolerate those swings and have the financial ability to overcome them can have more growth oriented portfolios, while those who would have trouble seeing their portfolios dip in value or who have financial constraints on their portfolios would have a more conservative strategy.  

Both events provide more support for diversification within ones portfolio.  High quality fixed income proves time and again to be a safe haven investment and climbs in tumultuous times, while stocks have bounced back from such events and are the engine of growth for a portfolio.  Also, certain areas of the world may react differently to an incident, and thus it is important to diversify broadly across the US and around the world.  While world stock markets dropped on the news of sanctions against Russia, it was the Russian market that dropped substantially more.

There will inevitably be more conflicts and crises this year and moving forward.  It’s important not to become focused on the near term fallout of the event and think bigger picture.  A portfolio’s investment strategy needs to focus on its specific goal and time horizon and not trying to time and predict the market’s reaction.  In addition, a portfolio needs be sufficiently diversified to protect against market volatility brought about by such events.

Index Performance                                        Feb.       YTD       Trl 1 yr.        

US Stock (Russell 3000)                                    4.74%      1.43%       26.74%    
Foreign Stock (FTSE AW ex US)                       4.90%      0.17%       12.50%   
Total US Bond Mkt. (BarCap Aggregate)          0.53%     2.02%         0.15%    
Short US Gov. Bonds (BarCap Gov 1-5 Yr)      0.14%     0.54%         0.31% 
Municipal Bonds (BarCap 1-10yr Muni)           0.80%      1.98%        1.06%   
Cash (ML 3Month T-Bill)                                  0.00%      0.01%        0.08%   


Raffa Wealth Management is an independent investment advisor providing nonprofit organizations, high net-worth investors, and qualified retirement plans with a full range of investment consulting services.  We were established to fill the need for transparency, clarity, and vision in the professional management of investment assets.   Visit us at