It was hardly disguised, and we were told for the past two weeks that war was imminent, but Russia finally played its hand and moved troops into the eastern regions of Ukraine. While there is no imminent threat to the United States, one thing is for sure. The stock markets will not take this lightly. We could be poised for an intense bout of selling.
It is important to remember that the stock market usually anticipates world events. As the major indexes already had moved into correction territory (meaning a 10% decline), it is not hard to anticipate a move to crash levels of 20% and more at this juncture.
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Here are some important items for investors to consider now as they may have to prepare for the worst:
- Do not continue trying to catch the proverbial falling knife. Instead, it may make sense to match current losses against gains, even if they are short term in nature, to help build up a cash supply. The proverbial dry powder may come in handy down the road.
- Immediately, if at all possible, close out any positions on margin. For individual investors to use margin loans to buy more stock is a bad plan when times are good, especially when those margin positions are high-volatility momentum stocks.
- As we have recommended for years at 24/7 Wall St., a position in gold helps to mitigate the downside. As we noted recently, the precious metal soon could be going to all-time highs.
- Make sure that all the dividend-paying stocks and mutual funds in personal and retirement portfolios are set to reinvest all capital gains and dividends. This allows you to buy more shares when prices are hit hard. The first quarter is coming to an end, and many stocks and funds pay dividends on a calendar quarterly basis.
- If you have the good fortune to come into a windfall, like an inheritance or something similar, think about real estate. With mortgage rates still near historical lows, owning cash-generating rental property is an idea that makes sense now.
- If you do indeed need to look for stock ideas, look at extremely conservative ideas that are not affected as badly by even the worst-case scenarios. In other words, companies that provide goods and services that are needed all the time.
In addition, the safest areas, like U.S Treasury debt, utilities and consumer staples, make sense. Here are some exchange-traded funds for those investments:
Utility Stocks
- Vanguard Utilities Index Fund ETF (NYSE: VPU)
- Invesco S&P 500 Equal Weight Utilities ETF (NYSE: RYU)
- Fidelity MSCI Utilities Index ETF (NYSE: FUTY)
Treasury Bonds
- iShares 1-3 Year Treasury Bond ETF (NASDAQ: SHY)
- iShares U.S. Treasury Bond ETF (BATS: GOVT)
- iShares 7-10 Year Treasury Bond ETF (NASDAQ: IEF)
Consumer Staples
- Consumer Staples Select Sector SPDR Fund (NYSE: XLP)
- Vanguard Consumer Staples Index Fund ETF Shares (NYSE: VDC)
- iShares Global Consumer Staples ETF (NYSE: KXI)
It is especially important not to panic and start selling your portfolio because of what is happening. We fought a regional war in Afghanistan and Iraq for 20 years, and despite the horrible cost and the loss of life, there was little if any effect domestically. Russia, while big geographically, is nowhere near the economic powerhouse the United States is, and you can bet that every possible sanction that can be used to help thwart this aggression will be, and at once.
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