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Because the world is so globalized and our nations are intertwined, it is easy for turmoil on one side of the world to affect us all. The war between Ukraine and Russia has been the epitome of this. Not only has the war affected us emotionally, but it also has financially. Preserving wealth during a war can be a difficult task for multiple reasons.
Wars tend to cause countries to implement economic sanctions, which can come in various forms, such as barriers to trade, tariffs, and restricting certain financial transactions. Not only do these sanctions shake the financial markets up, but it typically causes the prices of goods to increase, lessening your spending ability and diminishing your wealth.
During wartime, many people lose money due to inflation and currency devaluation. To avoid losing money, you could invest in commodities such as gold, silver, and other precious metals. Commodities tend to hold their value regardless of fiat currencies’ turbulence. Fiat currencies are government-issued currencies that aren’t backed by commodities such as gold.
There are many ways to prevent massive losses and preserve wealth during a war. Let’s dive into a few:
- Invest in Commodities
- Make Sure Your Investments Are Diverse
- Protect Your Savings
To be very clear, this post is not a suggestion to panic sell your current investments and buy gold! Turbulence in the financial markets is normal, but there are small additions that can be made t
Invest in Commodities
Preserving wealth during war means you must combat inflation and consider investing in precious metals such as gold and silver. Gold and silver prices tend to rise during an economic crisis, so buying these metals before a crisis hits will help you save money.
Commodities can provide a haven for your money in times of financial crisis. Commodities such as gold, silver, oil, agriculture, and livestock will always be in demand. These specific goods are helpful from the standpoint of life and production in all countries. Typically, when a currency’s purchasing power is diminishing from inflation, you can resort to purchasing commodities to hold value.
Below is an excerpt from research completed by CME Group discussing the impact of the Russia and Ukraine war on inflation.
The rise in these commodities have underlying fundamental reasons such as supply disruptions caused by Russia’s invasion of Ukraine, supply chain issues caused by the pandemic, inclement weather conditions in Brazil supporting soybean prices and seasonal increases in demand such as for gasoline during the summer months in the northern hemisphere, adding to inflationary pressures.
–CME Group
Of course, you can invest in commodities digitally by purchasing ETFs. Fortunately, this can prevent you from buying gold and oil barrels to store in your garage or spare bedroom. But, consider that if the world is going to hell in a hand basket, there is nothing that this digital asset will do for you.
You must have physical items such as jewelry to trade in a major catastrophe. Our currencies would most likely mean nothing if there was no world peace!
Make Sure Your Investments Are Diverse
Diversifying your investments is crucial and should be a priority when building wealth. However, companies will fare differently depending on the business sector. For example, when the war between Ukraine and Russia began, the U.S. put trade barriers on gas in Russia. Luckily, Russia only provided 8% of the gas imports, so it did not negatively affect the U.S. as much. But, it did still contribute to upward pressure on gas prices.
A report by News4Jax stated that the travel industry was negatively impacted because of gas prices. This is because the cost of flying increased and caused many individuals to curtail their leisure summer travel plans. So gas prices affected airlines and companies such as hotels, transport companies (Uber & Lyft), and travel planners (Expedia & Trip Advisor).
While on the other end, defense companies (such as Boeing and Lockheed Martin) performed well because they produced fighter jets and ammunition.
These are just a couple of industries that were affected by the war. The main idea here is that buying multiple companies from different sectors can potentially balance out unfavorable performance in one. Diversity can be easily achieved by investing in a total stock market index such as VTI or the S&P 500!
Protect Your Savings
Protecting your savings is key to preserving your wealth during the war. Where your money sits can play a significant role in your savings maintaining purchasing power. Therefore, investing your savings in a place that pays sufficient interest is essential.
The central bank ( Federal Reserve) will increase interest rates in an inflationary environment to strengthen the dollar. So it would be best to put your money in places such as money market accounts or high-yield savings accounts that will pay you with the increase in rates. Unfortunately, most normal savings accounts with large banks do not have much interest. So you are losing money by keeping it there.
