Investing during wartime: your portfolio and the Ukraine Russia conflict


written by oz chen

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Today I cover my take on the Russia-Ukraine conflict. I’m no history expert (watch this GREAT explainer instead), so I’ll look at what war means for your portfolio, investing, and crypto.

Before I get into the nitty gritty, let me help you take care of some cognitive dissonance. If you feel guilty about world event’s like Russia NOT being at the forefront of your mind, that’s OK. That’s human.

Here’s a heart-touching IG post from author Mari Andrew.

“Someone has always clinked a cocktail glass in one hemisphere as someone loses a home in another while someone falls in love in the same apartment building where someone grieves.

The fact that suffering, mundanity, and beauty coincide is unbearable and remarkable.”

Life is full of paradoxes and the world is big. Humans tend to project meaning onto others. You can make your own meaning, including what world events mean and what you choose to pay attention to.

I’ll get off that soapbox and step onto another. Here goes my take on the Russian Ukraine conflict—investing perspective.

What happens to the stock market during war times

Historically, the American stock market has taken a temporary hit after war starts. But over the long term the index has recovered and even increased.

Here’s a telling chart of S&P 500 performance across major wars:

Hidden story: this chart demonstrates the relative stability and power wielded by U.S. Obviously this is not the case worldwide: Russia’s stock market has closed and as a result Russian stocks have been cratering.

If you’ve been reading this newsletter for a while, then you already know about the Fear & Greed Index. It’s not a surprise that the gauge is pointing at “EXTREME FEAR” right now.

How paranoid should you be?

The past does not predict the future. History can only tell us what can happen. While the American stock market has recovered historically, we don’t know if this time is different.

The worst case scenario is nuclear war and mutually assured destruction. The best case scenario: the conflict de-escalates and we return to shirtless Putin memes.

My guess is that reality will play out somewhere in the middle. Which means a stretch of time in which everything will be uncertain.

Will Russia launch cyberattacks as backlash against American sanctions? What if those events disrupt our grid and put us out of power for weeks? The world is so intricately connected, and with Russia being a top oil producer…who knows what other 2nd and 3rd order effects may happen.

In these times, you cannot blame the paranoid.

Thinking through investment options

Investing is playing offense and defense with your money. Got higher risk tolerance and want to take on more volatile investments? Playing offense. More risk averse? Play defense.

Here are some investing scenarios, war times or not:

  1. Play offense: increase the money flowing into investments
  2. Business as usual: continue to invest at the same rate
  3. Hold steady: let your investments ride, but put less (or no new money) into investments
  4. Play defense: diversify investments into cash or less risky options
  5. Paranoid option: yank ALL your money out of risky assets and put them in cash, gold, etc.

I’m a mix of #2 and #3 above, which says that I’m fairly risk tolerant. I haven’t stopped investing, though I might decrease how much flows into stocks.

For American investors, I believe that staying invested over the long term is the best option.

Some things to keep in mind when there market is volatile (hehe it’s always volatile)

  • Even if your portfolio drops, you haven’t lost any money until you sell, which “locks” in your losses. Same thing goes for gains.
  • Fear in the market can also represents an opportunity to buy stocks at low(er) prices.

Warren Buffett’s famous words come to mind:

“Be fearful when others are greedy, and greedy when others are fearful.”

Another emerging thought for me: when you buy something like the S&P 500 index, you’re betting on the largest American companies, and in a way, betting on America.

In these times of conflict, buying American companies (many of which have imposed their own sanctions, in addition to the overriding ones from Uncle Sam) may be a patriotic move. Take that however you will.

The power of diversification

Crisis events are a stress test of one’s portfolio. Gold did not perform well as an investment until recently as investors use it as a safe haven.

The Russia Ukraine conflict also underscores themes around energy independence. It sucks to rely on other countries for energy, so traders might think of making an ESG (environmental, social, governance) play.

The point is not necessarily “go buy gold!” or “buy green stocks!” but rather that a diversified portfolio that includes uncorrelated assets can shine brighter during volatile times.

My portfolio is mix of index funds/ETFs covering the S&P 500, REIT, and bonds. Not to mention crypto + holding stablecoins. I feel that to be enough, and have avoided the temptation to trade. why?

I realized what kind of investor I am. If you successfully follow the markets like a hawk and can get in and out of trades at the right time—congrats, you are exceptional.

Literally, the exception to the rule, as most investors cannot time the market. I’m not a trader. Even if I think ESG is a good play, I might enter a position and not know when to get out.

So I stick with indexes that are already diversified. But a special note should be given to crypto.

Crypto: a hedge against government-controlled economies

Politicians decide to go to war while their citizens suffer the worst consequences. Not only with their lives in war, but through economic impact. Russia’s currency, the ruble, has hit new lows. Meanwhile, Russians have been buying crypto, which has been having a stellar week. Situations like this underscore the utility of decentralized monetary systems like crypto.

Decentralized cryptocurrencies like Bitcoin operate outside the vice-grip of nation states.

  • Crypto is a hedge against the bad decisions a government can make, especially around monetary policy.
  • Cryptos are like their own economic nations.

I wrote about how skeptics miss the point about Bitcoin, that crypto represents an alternative financial network. The government controls financial access, e.g. the freezing of bank accounts. Under those threats, people will flock to crypto when they can’t trust their own government’s economic systems.

Alternatively, Russia’s exploration of crypto to evade sanctions also points to the power of having a trustless, neutral financial network not controlled by any single nation state.

While the U.S. dollar is still the world’s reserve currency, it might not be forever. We take it for granted that currencies have a lifespan, and that currencies can fail. Just see what happened with Venezuela, Lebanon, and Zimbabwe.

What I’m doing as a crypto investor

I’m continuing to buy Bitcoin and Ethereum using the 50/50 strategy. Crypto is NOT perfect and volatile, but I believe in this emerging – and ever strengthening – alternative financial network that the world needs.

_ _ _

That’s all I have to say about investing during war times right now.

I hope you’re well, and my best wishes go out to the innocent Ukrainian and Russian civilians out there.

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