The world can be a frightening place for savers and non-savers alike. Those who’ve diligently saved for retirement are typically invested in equities, stocks, or mutual funds. Each brings average returns that outperform safer investments. Each brings the risk of a loss of principal should the markets turn south before or during retirement. Most investors plan to reduce their risk exposure the closer they get to retirement, but in reality, many get hammered by market losses by chasing higher returns. It’s going to be a bumpy ride.
“Heightened volatility on the escalation of the conflict shows markets had not fully priced in the likelihood of deeper conflict,” said Mark Haefele, the chief investment officer at UBS Global Wealth Management. “We expect continued volatility in the near term as leaders calibrate and announce their response to this escalation.”
In a March 2003 working paper, the National Bureau of Economic Research noted the following on war and its impact on stock markets. “We find large effects in equity markets: and war lowers the value of U.S. equities by around 15 percent. This effect is concentrated in the consumer discretionary sector, airlines, and IT; the prospect of war bolsters the gold and energy sectors. Should such a scenario play out Americans could be looking at another period of stagflation similar to that experienced in the 1970s. Stagflation occurs when consumer prices rise as the economy contracts.
Another factor roiling the equities markets is the Federal Reserve’s planned series of interest rate hikes in the attempt to rein in inflation.
All things considered, inflation, war, and a fragile stock market stand to disproportionately impact older Americans. Some will have to make difficult choices; return to work, reduce spending, or tap into available assets. The latter are faced with selling investments at a loss in a down market, continuing fixed withdrawals as the underlying returns fall or go negative, or considering the one solution that’s been hiding in plain sight- their home.
Wars and global financial markets will touch each one of us retired or not. First, more dollars are required to fill your tank or grocery cart. Second, with lower returns or losses in your investments and savings. In times such as these prudence and preparation are worth their weight in gold. Your mission, should you choose to accept it is to help older homeowners understand their options and how to implement them.
Resources cited:
[CNBC] Global markets roiled as Russia invades Ukraine
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1 Comment
This war is scary and sad, hopefully it will be resolved quickly