World is headed for the abyss: How should you invest?

As originally appeared in The Jerusalem Post on July 12, 2024.

“There are an awful lot of things going on that need understanding and explanation. To put it mildly: the world is a mess.” -Former Secretary of State Madeleine Albright

Recently most of the calls I receive deal with the fact that the world is a big mess, and no one knows what to do with their money. I can’t begin to tell you how many of my clients believe that we are approaching the end of the world. Well maybe not that extreme, but as the geopolitical situation the world- over spins out of control, investors are questioning how best to position their investment portfolio for the global turmoil.

Aside from the Israel/Hamas/Hezbollah war, there is Iranian nuclear proliferation, the Islamization of Europe, Russian’s war with Ukraine, the sieve that has become the U.S. border, a general lack of law and order throughout much of the West and whether president Biden will run for re-election or be replaced. I need to take two Tylenol just thinking about all that is going on. Throw in daily headlines about how the U.S. stock market continues to set record highs which means that a crash is imminent, and it’s no wonder that investors are nervous.

Stay the course

My advice; Do nothing. Just stay the course and follow the investment plan that you have created. The world has always been a very dangerous place, pundits have always been calling for market crashes, and most of the time the market moves higher. I have had many clients over the years who try maneuvering their portfolios based on political events and how the anticipated events would play out. More than once the client was correct in the prediction, but the portfolio used to try and profit from the events dropped anyway.

I think investors need to differentiate between the political and moral chaos and the fact that most adults still wake up each morning, brush their teeth, eat and go to work. They use their smartphones, go on vacation etc. Economies are still open for business and doing just fine. If your favorite candidate loses, or Russia succeeds in taking over Ukraine, or even if you are potentially facing existential threat, life goes on. Just look at the crowd at Ben-Gurion airport. War raging on two fronts? Still gotta fly for summer vacation.

In this week’s Torah portion of Chukat we read about the death of both Miriam and Aaron the high priest, four months apart. Keep in mind that Moses will pass away just 7 months later. The children of Israel are on the cusp of crossing into the Holyland, after 40 years of wandering in the desert, 2 of their leaders die. The two who through their merit the nation was provided with water and cloud cover during their 40 years wandering in the hot desert. Imagine their feeling at this point. Just as the nation is about to finally complete the exodus from Egypt process, and fight wars to conquer the promised land, they are without the very leaders that have guided them all that time. Talk about potential chaos. But new leaders emerged, and everything continued as planned. Sometimes the process may not be smooth, but in the end, it works out.

Retirement investors

While I believe that most investors should just stay the course and do nothing, retirees are different. For retirement investors that don’t have a large net worth and can’t afford the possibility of a 30-40% loss, pragmatism should win out. For these investors, we may be entering a period of time where capital preservation takes precedence over capital appreciation, and they should make some changes in the way their portfolio is allocated. I say this for 2 reasons. 1- They don’t have the luxury of time on their side and the ability to rebuild their wealth in the event of a serious market drop and 2- because the most important aspect to investing is being able to sleep well at night and not be nervous that a sudden market drop will wipe out your savings.

For these investors, it may pay to lower stock exposure, and maybe increase exposure to bonds and government-insured CDs(Certificate of Deposit). Consider taking the foot off the gas pedal a bit and look for a more balanced approach to the portfolio. In fact, when retirees set up their portfolios, they should have already taken this into account. If you can’t afford to lose a certain amount of money, then that amount shouldn’t be invested in the stock market anyway.

If you are nervous about the current state of the world, speak with your financial advisor to coordinate how best to position your portfolio.

The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates.

Aaron Katsman is the author of Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing (McGraw-Hill), and is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States. Securities are offered through Portfolio Resources Group, Inc. (www.prginc.net). Member FINRA, SIPC, MSRB, SIFMA, FSI. For more information, call (02) 624-0995 visit www.aaronkatsman.com or email aaron@lighthousecapital.co.il.