The Russia-Ukraine war has put a stark spotlight on the critical importance of diversification for investors in order to safeguard and build their wealth, affirms the CEO of one of the world’s largest independent financial advisory, asset management and fintech organisations.
The observation from Nigel Green, chief executive and founder of deVere Group, comes as all three major U.S. stock markets (the S&P500, the Dow Jones and the Nasdaq) ended lower on Tuesday, after a volatile session.
Meanwhile, shares in Asia-Pacific were mixed in Wednesday trading, European futures are slightly higher, while those in the U.S. are wavering.
Nigel Green says: “Markets are seesawing as investors weigh the unfolding tragedy in Ukraine due to Putin’s war and the impact from it.
“It brings into laser-like focus the critical importance of portfolio diversification for investors if they are to protect and build their wealth.”
Diversification is the practice of spreading your investments around so that your exposure to any one type of asset is limited. This practice is designed to help reduce the volatility of your portfolio over time
“The heightened turbulence triggered by monumental geopolitical developments which have far-reaching consequences mean that now more than ever investors should be as diversified as much as possible in order to maximise returns relative to risk. This means across geographical, sector and asset class diversification.”
He continues: “Before Putin made his intentions clear by amassing 150,000 troops on the border, there had been a steady move away from growth stocks into value stocks.
“Investors were increasing exposure in those sectors that could benefit from higher inflation and an improving economy, such as financial, industrial and energy stocks, and out of tech stocks, for example.
“But this growth to value rotation has stalled for now as the world is now focused on the fallout from the Russia-Ukraine war.
“This reminds us how quickly things can change and how essential it is to be diversified.”
The deVere CEO suggests that it should not be a case of ‘either/or,’ and that a savvy investor should incorporate both value and growth stocks into their portfolios.
He concludes: “In-the-know investors, having witnessed geopolitical and economic shocks in the past, will use their experience and not attempt to ‘time the market’ and make decisions based on day-to-day headlines. The tragedy of the Russian-Ukraine war lays the case bare for investors ensuring that their portfolio is properly diversified.”