MARKETPLACE: RUSSIA, INFLATION, AND MARKET VOLATILITY

MARKETPLACE: RUSSIA, INFLATION, AND MARKET VOLATILITY

Broadway Bank Wealth Management will develop an investment strategy to help protect what you’ve worked so hard to build.

By The Portfolio Managers at Broadway Bank  

Recent headlines buffeting the stock market have been dominated by Russia’s invasion of Ukraine and, to a lesser extent, rising inflation.  The two issues are not entirely unrelated.  Recent bans on trade with Russia have driven prices of oil and other commodities higher, but inflation became a concern well before Russian troops crossed the Ukrainian border. You might be wondering; how should investors respond? At Broadway Bank Wealth Management, we collaborate with our clients to provide guidance and advice on investment strategies, helping them navigate challenging economic and market conditions, such as those we are seeing now. 

Troublesome headlines and market declines feed what psychologists call a “recency bias,” where we place disproportionate emphasis on the latest events and newest information in our decision making. The result is loss of long-term focus as we overreact to recent market declines while forgetting about the stock market’s 100% cumulative return over the period of 2019-2021. While images in media coverage can be heart wrenching, and the atrocities endured by those directly touched by armed conflict are both real and severe, effects on markets are generally short-lived. 

Consider how the market behaved on news of the Iraqi invasion of Kuwait which began on August 3, 1990. As measured by total return of the S&P 500, the market declined 6% in the following month. Three months in, it was down more than 10%. The decline shrunk to just 5% at the six-month point. At nine months, the market was slightly higher that it had been just prior to the invasion (Bloomberg). This pattern is typical for market reactions to news of major armed conflicts. A survey of instances over the last 90 years showed the median market decline was about 8% while the market was about 10% higher a year later (BCA Research). While these statistics are not intended as a forecast for how the current scenario will play out, they do lend perspective. The message we take from them is to think twice before abandoning a well-considered, long-term investing plan because of a patch of market volatility which may not last as long as the crisis which triggered it.

The greater danger to an investor’s wealth is inflation. The Bureau of Labor Statistics reported a 7.9% annualized rate of inflation in February, the highest since 1982. Inflation is an insidious thief that robs the purchasing power of your money over time. If your investment returns equal inflation, then your “real” wealth has not changed. While investment exposure to inflation-sensitive commodities such as gold or oil may help to combat inflation in the short term, the primary weapons against it are growth assets. These include stocks and real estate whose values have historically risen over time at a rate higher than inflation. While we may feel the impulse liquidate our investments to wait out a crisis, doing so would be far more likely to harm our efforts to fight inflation beyond the near term, while inflation does its greatest damage over the long term. Therefore, Broadway Bank Wealth Management strongly advocates sticking to a well-designed investment plan as a way to play the better odds for long-term success.


For 80 years, Broadway Bank has been an integral part of South-Central Texas, evolving into one of the largest independently owned banks in Texas. We believe in giving our clients sound financial advice that considers their unique goals and risk tolerance. Your plan-based approach will include a comprehensive asset management proposal, protection and distribution strategy to help you successfully reach your long-term financial goals. As your fiduciary, we will always hold ourselves to the highest standard of care by placing your interest above our own.

ABOUT BROADWAY BANK’s INVESTMENT MANAGEMENT TEAM:  Our in-house, locally based Investment Management team is comprised of impeccably credentialed, best-in-industry professionals. We believe in giving our clients sound financial advice that considers their unique goals and personal preferences. Our team will implement your strategy with a custom-bult investment solution to help you successfully reach your goals. Clients have complete transparency and easy access to their team by phone, in person or online. If you are interested in learning more about Broadway Wealth Management, contact us at bwealthmanagement@broadway.bank or visit broadway.bank/wealth.