After a fairly bullish February, investors on Wall Street began to ease back on their optimism. Russian military forces took positions in the Crimean region and Ukrainian troops mobilized and prepared for the worst-case scenario of an invasion authorized by the Kremlin and President Vladimir Putin.
What does this major geopolitical development mean to average investors and individuals concerned about their personal finances?
A selloff on Wall Street started as early as the final day of February. The Dow Jones Industrial Average (DJIA) and the S&P 500 Index enjoyed a bullish morning session, but the afternoon news coming out of Ukraine and the disputed Crimean hotspot put institutional investors in more of a bearish mood.
By the time the closing bell rang on Monday, March 3, the DJIA had lost 153 points.
Dealing with short-term gains and losses
Individuals who are following the 2014 trends of values-based investing and low-impact financial planning shouldn’t have to worry about too much about the developments in the Ukraine, at least not for the time being.
Values-based investing is the philosophy of allocating personal funds to enterprises that advocate social responsibility, environmental conservation, and good corporate governance. This is not a new practice by any means, but it has matured to a level that supports comprehensive investment platforms such as money management funds.
The underlying idea of value-based investing is to screen investment targets that are serious about sustainability and positive social impacts. Executive and management teams at companies that put values before profit are less susceptible to negative outcomes and volatility, according to the numbers.
There seems to be a correlation between sustainability and performance, and investors are paying closer attention to this trend.
The best way to deal with volatility is to try to avoid it at all costs. To this end, fund managers are finding out that companies favored by values-based investors tend to be quite resilient, even during periods of market turmoil such as the ongoing situation in Ukraine and the Crimean region.
Balancing life before balancing investment accounts
There’s an unwritten tenet of financial planning that urges people to match investment styles with the personality of the investor. There can be a problem with this approach insofar as personalities will often clash with investing styles when they do not find common ground.
This is where low-impact financial planning works best. Low-impact financial planning was recently described by William Baldwin of Forbes as a collection of measures to keep investment portfolios simple. Chances are that a retirement portfolio shook up by the situation in Ukraine is too complex. Low-impact financial planning does not advocate, for example, betting heavily on a single index fund that tracks the DJIA.
Simple investments and low-impact financial planning can be more easily achieved when one’s own affairs are in order. When investing and financial planning demand too much time and effort, or when they become stressful, they can bring about an imbalance in your life.
For this reason, it’s smart to achieve balance in life prior to evaluating complex investments.