​The current geopolitical conflict between Russia and Ukraine is unsettling.  Over the next few days most media outlets will document the ugly aftereffects of Russia’s aggression.  When events like these occur, it is normal to wonder about the impact on our investments.
 
Market’s Adjust Quickly
Today’s edition of the Wall Street Journal provided an outline of the vast number of companies, both large and small, that have business interests in Russia.  Many are household names, like Citigroup and JPMorgan Chase & Company.  When events like these occur, our gut instinct is to think that the market price of these companies will be hurt (and perhaps hurt even further by increased sanctions imposed by the West, which President Biden is announcing as I write).  While it is true that these events can impact markets/prices in many ways, it is important to remember that investors have been watching and pricing in the impact of a potential invasion by Russia for over a month.  In short, we believe current market prices quickly incorporate expectations about the effects of these events on economies and companies. Much of the impact on pricing, based on an invasion by Russia, has already been factored into the market.
 
Diversification is Key
Geopolitical risk is one of many reasons we diversify our portfolios widely.  We don’t want any one event, market, or company to have an outsized impact on our investments.  
At the end of 2020, the total market cap of Russia was $281 billion.  Compare this to market cap of Apple, which is over $2 trillion, and you realize what small fraction of the global capitalization is represented by an emerging market economy like Russia (roughly .002% of the global capitalization).  Overall, a struggling Russian economy is likely to have little impact on a well-diversified portfolio.
 
As investors in capital markets, we’ve been here before (see the charet below, which I love!).  Sometimes it’s easy to forget the discipline needed to achieve long-term success.  As my mom used to say after many of my unwise boyhood decisions, “this too shall pass.”
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