A Guide to Investing During Times of Crisis

As the war waged by Russia in the Ukraine continues to intensify, investing and financials may be the furthest thing from most people’s minds.

However, traders and investors will have noticed that the markets have been directly affected by the ongoing conflict, as major currency prices continue to see their values depreciate while the prices of raw materials from wheat to gold have soared to multi-year highs.

As we can see, the impact varies depending on the asset class in question. But how can you look to invest successfully during times of crisis and conflict? Let’s find out!

Keeping it Cool During a Crisis

It’s easy to understand why investors have adopted an increasingly risk-averse approach in the wake of the Russia-Ukraine conflict, with the war compounding existing issues such as soaring inflation and disproportionately high energy costs.

However, those who are looking to offload or sell assets at this time are only likely to lock in their inevitable losses to date, so a preferable strategy is to remain patient and wait for a semblance of normality to return.

This is particularly true from the perspective of stock trading, as it’s likely that some equities will continue to trade well throughout the conflict (especially internationally) and see their values increase as the steam comes out of inflation later this year.

Another reason to keep a calm head is the opportunities that arise during times of crisis. For example, some stocks will have seen their values slashed as a result of the war, creating significant long-term value for those who buy and hold and the discounted price.

This type of opportunity also characterises forex trading, which allows speculators to hedge against particular currencies and profit even in a depreciating market.

So, by maintaining a calm and dispassionate overview of the market, you can manage your portfolio effectively and identify new opportunities to optimise your profitability.

The Specifics of Investing in Wartime

Another key lesson here is that not all types of crisis are created equal. In fact, some can have a largely positive impact on the financial markets, particularly for traders who are knowledgeable and open-minded.

This was borne out by a major review of market reactions during wars between 1926 and 2013, which revealed that the impact of conflict on US stocks was more positive than negative.

During World War II, the Korean War, Vietnam and the first Gulf conflict saw both small and large-cap stocks outperform their long-run averages, while volatility largely remained unchanged and in some cases diminished over time.

However, bonds tended to fare less well during these conflicts, thanks largely to the nature of this asset class and how it responds to the costly and inflationary nature of wars. This is especially true in the case of government backed or treasury bonds.

In contrast, stock values tend to depreciate and underperform during periods of recession. Sure, this creates an opportunity to buy blue-chip stocks at a reduced price, but this requires much more forethought as the global economy contracts. Index trading is als desirable during recessions, as they provide instant diversification and enable you to minimise your exposure to specific risks.

Currencies provide a unifying factor here, however, as the derivative nature of forex provides potential opportunity in all forms of crisis.

Emerging economy currencies outperformed major alternatives during the great recession, for example, and this type of trend is one to watch if you want to profit in times of crisis.

Huynh Nguyen

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