Between the raging war in Ukraine and the lingering pandemic, conditions have been tense, and global morale is rather low right now. As the economic impact of the war ripples through the entire global economy, it’s clear that no one is getting out of this unscathed. As everyone watches in anxiety and tries hard to protect the little they have, for investors, it’s a good a time to make money as any. War is a man-made calamity but not an investing catastrophe. Read more to invest in wartime.
Safeguarding your wealth from the indirect consequences of war is a crucial move for investors. Global stock markets are spiraling with a 5% year-to-date, and technology stocks in the US record double-digit declines. Bond prices are free-falling at 2%. With geopolitical dynamics ominously changing, most investors can’t help but wonder if it’s the time to bail out of equities and risky assets and consider a bunker of cash and gold. Unfortunately, this is not it; there’s money to be made.
The global stock market rewards discipline
While the rest of the economy is panicking, a handful of global sectors are forging ahead and registering agreeable returns. Historically, stock markets tend to rebound within 12 months after major military events, and they keep going up afterward. But while they are down, you should get to buying and waiting because no matter how bad the crisis and downturn, the stock market always recovers.
However, the rebound favors investments in broad, globalized, and diversified markets, not individual stocks or market sectors. You may be tempted to think that picking out a particular sector is a safe bet, but this is far from safe because any efficient stock market will have already integrated all the available information and expectations into the plays. What you think is a good buy is just smoking mirrors. Instead of selling, the tension should motivate you to buy, and buy smart, if the stocks keep plummeting. Venture into broad markets and sectors even in other countries.
Defense stocks are a must-buy
Countries boast enormous defense budgets, and who gets the bulk of the budgets? Defense contractors. These companies gain the most from the insatiable federal appetite for military equipment. Defense stocks are suited for income-oriented investors seeking sure-footed growth, large cash-flows, and generous, rising dividends. The titans of the defense industry like Lockheed Martin (NYSE: LMT), Northrop Grumman (NYSE: NOC), Raytheon Technologies (NYSE: RTX), General Dynamics (NYSE: GD), are always leveraging their R&D to be the leaders in advanced warfare equipment and branched out into next-gen tech; everything that makes their stocks more profitable. The catch here is to pay close attention to the metrics when evaluating these stocks. Watch their bill-to-order numbers, labor issues, contracts delivery, and other legal oversight issues.
Energy and petroleum is a green light
Traditionally, oil and gas are a staple during wartime. The army uses much more gas, and civilians rely on it too. With the global supply of oil and gas being threatened by the Russia-Ukraine war, countries like the US are finding ways to grow their supply and look into renewable energy.
Companies are gearing up for huge returns as they seek alternative supply chains, with the fate of Russian oil hanging on whether their supply chain survives the war and sanctions. Crude oil prices are $100+ per barrel, and with Russian exports dwindling with the war tensions, the scarcity in supply could see prices go even higher. This is good news for Crude oil stockholders in companies like Chevron (NYSE: CVX), Exxon Mobil (NYSE: XOM), Marathon Petroleum (NYSE: MPC), among other global crude oil investors.
As countries like the US look toward green energy, renewable energy stocks are set to fill the gap left by crude oil sanctions. The stocks to invest in include Brookfield Renewable (NYSE: BEP, BEPC), Clearway Energy (NYSE: CWEN), First Solar (NASDAQ: FSLR), among others.
Commodities
Most equity investors rush into utilities and other consumer staples, but these hedges have another problem; they are entangled with inflation, a caveat of war. The fickle energy policies have made it harder to make plausible gains. Within the commodity sector, focus on companies that can increase their unit sales even when raising prices is challenging. These include generic drugmakers and medical companies like Forest Labs. People will always need medication, more so during wartime, but since Medicare is heavily squeezed, generics have a chance to grow their market share.
Broad commodity portfolios are an effective hedge and an attractive source of returns. Your portfolio may include industry stocks, consumer staples, healthcare, financials, consumer discretionary stocks (retail), tech, and essentials & utilities, with the rest in cash to cover expenses. Commodities like gold are nice to have, but the price is almost at $2000/ounce and rising.
Bonds are sticky; tread carefully
War is inflationary, and inflation is bad for bonds. Bonds usually pay a fixed income, and their value plummets with rising inflation. Their prices also have to reduce to compensate for insanely high payments, making them worthless after a while. Governments tend to borrow during wartime, and the bond prices will go down, and interest rates will be unstable and sway according to the government’s financial health. When a war is looming, you might want to hold off on investing in bonds until it’s safer to buy them.
Stay Calm
This is the time to avoid checking your brokerage accounts since the waves of red will only make things worse mentally for you. The stress-inducing headlines and stock performances will eventually come to pass, and the market will rebound. A good rule is to “buy on the sound of cannons, sell on the sound of the trumpets,” and keep calm in between.
War begets emotions and compassion, but financial decisions aren’t made based on emotions and compassion. They require discipline, especially during unstable times like war. Have the discipline to look beyond the doomsday-themed headlines, curb the fear and greed and diversify into broad markets and stable stocks/sectors and wait because eventually having nerves of steel pays off, and it pays off good.
This post was written by Fiverr seller Willy Wallace, I hire Fiverr writers who are competent in the subject they are hired for, this way we all learn more. Subscribe for more business, sales and investing posts. Remember, I’m not a financial advisor, you should be doing your own research befor buying anything. Make sure you can handle the drama of day to day changes because it’s going to be weird for a while. Have a lovely day.
