Newsletter Stories

A War of Many Fronts in Europe

War of Many Fronts in Europe

One of the biggest headwinds to the global economy is Russia’s invasion of Ukraine, which has stunted the recovery of European economies, weakened the Euro, and created an energy crisis in the region.

In that sense, it’s easy to recognize that the war in Ukraine is also being fought on economic fronts — and each of those headwinds come with their own unique challenges. However, the most important thing to know about is the energy crisis in Europe.

European countries were extremely dependent on Russian energy resources. Since Russia has literally turned off the faucet of resources to these countries, the price of energy goods has multiplied. Those costs will inevitably be passed along to energy companies — some are even bracing for collapse given the state of the energy markets — and individuals, who are already protesting in several countries given the higher cost of energy.

The European Union announced a plan to cap what they’re willing to pay for Russian gas, hoping that the economic block will have enough pressure to push Putin’s Russia to turn the faucet back on. However, seeing as though the EU needs Russia more than Russia needs the EU at the moment, it’s unlikely Russia will budge.

How Does This Change Your Plan?

We’ve reiterated again and again: it pays to have a financial plan. That plan could be as simple as saving a few hundred bucks of your paycheck, paying down credit card debt or student loans, putting some cash into your 401(K), or doing a mix of things.

And while you’re welcome to change that plan, it helps to stay the course once you’ve got one. It never pays to change your mind over and over again unless you have convincing and meaningful new information.

The headwinds for markets, which we detailed above, are some of the biggest news stories of the year. After all, it’s hard to forget that major stock indexes are down more than a fifth since the start of the year when you might have money on the line.

However, negative news and positive news has a tendency to be fleeting. After all, two years ago the global economy saw upheaval at the start of the COVID-19 pandemic. The stock market recovered its losses in less than nine months, while most of the economy was still closed, and rallied on to a cumulative gain.

Sure, markets are down on their luck — but it pays to ask yourself what you really want out of your money. Do you want to retire early? Do you want to take a mid-career break? Do you want to buy a house? All of these are important considerations.

Vanguard observes that $1 invested, assuming a 4% return after inflation, could multiply several times over by retirement. Those returns are not a guarantee, but the biggest factor in that equation is time.

So, based on this information, dramatic events in markets might give you an opportunity to reflect on your goals. If they’ve changed, it might pay to change your plan. But for many people, these aberrations in the market are an opportunity to stack cash, invest in their future, and go long — even if those things require you to stay vigilant about what’s going on in the world around you.

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