Mar 3, 2022 4 min read

Since Russia invaded Ukraine last week the world is on high alert.

We were already experiencing the highest inflation rate in 40 years. That situation is only going to get worse because Russia is a major exporter of energy and other natural resources.

Since the United States and our NATO allies are keeping troops and other military actions from spreading, we are trying to punish Russian President Vladimir Putin with severe economic sanctions. The hope is as things get rougher in Russia, its people will put pressure on Putin to withdraw.

Putin raised the level of nuclear preparedness to a level not seen in decades. One mistake could lead to World War III.

All of these actions have an economic cost to the world.

Ukraine’s economy has grounded to a halt, and there are large amounts of physical damage. Russia does not have access to world capital markets and their economy will suffer very badly. Large amounts of money are being spent on war efforts, and there are expected to be millions of refugees flooding into neighboring countries.

This all adds up to higher prices.

All of these things make the FED’s job more difficult. They must try to find a way to slow inflation without putting the country into a recession. It is not their job to protect the stock market. Since the invasion, the market has become even more volatile. We have seen the market plunge 800 points early in the day, and end up being up 100 at the end of the day. We have seen days down more than 600 points.

Investors must make sure that their portfolios match today’s financial realities. Bull markets do not last forever. The current one has been going for about 12 years if you discount the flash crash in March 2020 at the start of the COVID-19 pandemic. It recovered a few months later when we saw the whole economy was not shutting down because of the pandemic.

Government spending is adding to the deficit and inflation. They have not passed new taxes to pay for their spending. In fact, inflation is more than a hidden tax; it makes the repayment of government debt more expensive.

As interest rates rise, bond values fall. Many people consider bonds the safe portion of their portfolio. CD rates will not automatically rise as interest rates do. This is because banks and credit unions will not raise the rates; they pay depositors until they have enough demand to borrow.

As the FED raises rates, it is designed to slow the economy. This means fewer people will buy houses and cars or make other major purchases.

The stock market is probably going to be more volatile and likely to experience some correction. The easy money policies the FED has been supporting through quantitative easing and low interest rate have been a major part of the run up.

Make sure your portfolio matches your risk tolerance and timeline of when you need to access these funds. While there is never a good time to have a correction, there is a worst time. That is right before or early in retirement. Those are the times when sequence of risk can have a major effect on your retirement.

Your Financial Future is written by certified financial planner Gary W. Boatman, MBA and CFP, who also wrote the book, “Your Financial Compass: Safe Passage Through The Turbulent Waters of Taxes, Income Planning and Market Volatility.” If there is an area that you would like to see discussed in the column, send your suggestions to gary@BoatmanWealthManagement.com.