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3 Powerful Ways the Russia-Ukraine War Will Impact Your Money

The continuing conflict in Ukraine is loathsome to watch. With the 24-hour news cycle, it’s all any of us have been watching unfold since Russia’s invasion into Ukraine on February 24, 2022. War is nasty business, and the humanitarian crisis it creates is heartbreaking. 

As a financial advisor, I’m also monitoring how the geopolitical events are impacting the economy as a whole and what it means for my clients financially in the short term and the long term. 

How high will prices for consumer goods rise? What does it mean for long-term investments? What should be expected in the short term as it relates to the economy and its impact on your wallet? These are all the valid questions circling important money conversations right now. You want to know you’re making the right decisions with your money. However, with everything feeling so unnerving right now, what you should be doing with your money, if anything, may not be clear anymore.

So, let’s take a look at how the Russia-Ukraine war will impact your money here in the United States and some immediate actions you can take with your personal finances. 

3 Personal Finance Impacts from Russia-Ukraine War

1. Volatility 

We are in for a bumpy ride, folks. There is no denying that you will watch the markets experience sharp swings in both directions for a while. As investors react to the uncertainty before us and have diminished confidence in certain sectors, you will feel that boat rocking wildly.

In the short term, it can feel nauseating. In the long term, you can expect markets to recover, as they always have. When? No one knows. But if history has taught us anything, it’s that even during the most tumultuous times in world history, markets recover. 

Just look at how the markets have recovered after some of the largest downturns in U.S. history: 

*Source: Morningstar as of 1/31/22. Returns are total return, including the reinvestment of dividends. U.S Stocks represented by the S&P 500 Index. Past performance does not guarantee or indicate future results. Index performance is for illustrative purposes only. You can't invest directly in an index. 

2. Inflation

We are experiencing unprecedented inflation. As of February 2022, the United States saw a 7.5 percent inflation rate, the sharpest increase in forty years. There is so much pressure on consumer prices that everyone is feeling the unrelenting cost of living - with no end in sight!

And what isn’t able to keep up with prices? Wages. So, essentially, everyone in the United States has taken an incredible pay cut. 

To put this in real terms, on Monday, March 7, Yardeni Research estimates that every American will pay about $2,000 more in gasoline costs this year, which will translate to $1,000 more for groceries. That means that people in the United States will have $3,000 less to spend on other things this year. 

Granted, the price of gas was increasing even before Russia invaded Ukraine. Since the invasion, the price for a barrel of gasoline has only continued to skyrocket as the Biden administration looks for solutions to bring the price of fuel down. As of this article, the price for a barrel of crude was at an astounding price of $124. To put it into perspective, crude was down to as low as $11.26 per barrel in April 2020. 

It’s no wonder we are feeling pain at the pumps and in our wallets.

3. Rising Interest Rates

A lesser talked about financial consequence of the Russia-Ukraine war is the likelihood of rising interest rates here at home.

What we are experiencing is a domino effect. When the price of one commodity rises, it can have a ripple effect on everything else. With the higher cost of crude comes increased prices for food and other products. Rising prices lead to lower demand, supply chain issues, and higher inflation rates. With higher inflation rates come rising interest rates.

The Federal Reserve was already planning to raise interest rates this year. The reason why the Federal Reserve would increase interest rates right now is because inflation is soaring, and it is a way to slow down the economy so that they can get it under control.

From an economic perspective that makes sense. Raise interest rates to slow the economy and lower interest rates to stimulate the economy. But from a personal perspective, it simply means it will become more expensive to borrow money on everything from credit cards, mortgages, car loans, and so on when rates rise. Conversely, savings account interest rates go up when rates rise, so parking your cash gets you more of a reward potentially.

4 Steps You Can Take With Your Money

With everything feeling in crisis mode, here are some things to consider doing with your money right now.

1. Buy equities. It may seem a little crazy, but when the markets are down and volatile like they are right now, you can buy stocks at a discount. You want to maintain the appropriate diversification and risk profile for your overall portfolio, but now is a good time to buy.

2. Check-in on your diversification. Speaking of diversification, make sure you are still diversified. Rebalance your portfolio if necessary to ensure you aren’t taking on more risk than you can stomach.

3. Manage your personal inflation rate. We know that prices are soaring, and there is plenty that is out of your control. What you spend your money on is within your control, and so you may choose to adjust your spending to stretch your cash further and minimize your personal rate of inflation at home. 

4. Don’t overreact. Just because the media is in a frenzy doesn’t mean you should get frazzled. Making impulsive decisions with your money and investments rarely results in a winning strategy. Instead, be proactive and measured as you weigh financial decisions right now. No one knows what will happen, and no one can time the market perfectly. 

As with anything that relates to your personal finances and investments, consult with your financial advisor if you have questions or just aren’t sure you’re making the best decisions for you and your family.  You can always reach out to me at Afton Advisors, too.