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Diversification: A strategy for troubled times

March 8, 2022
clock 2 MIN READ

Russia’s invasion of Ukraine has resulted in a series of downstream developments that have unsettled many investors. Many countries have responded to Russia’s offenses with an array of sanctions, bans, and other coordinated actions—largely focused on disrupting the country’s financial, energy, technology and transportation activities, as well as state-owned enterprises and high-profile individuals in public and business positions. As a result, inflation has leapt higher, particularly in food and fuel, further challenging central banks amid ongoing supply bottlenecks and robust demand pressures that have caused inflation to run hot. The stock market has responded with roller-coaster-like volatility and, as is the case whenever volatility rears its head, many investors are responding with panic.

Turmoil can come from any direction at any time

While it is human nature to feel uncomfortable during times of volatility, it helps to remember that volatility is normal. It’s an expected—if unpredictable—part of investing. While the current focus is on Russia, this isn’t the first geopolitical conflict that has turned markets sideways—and it also won’t be the last. From the COVID-19 pandemic to the collapse of Lehman Brothers, disruption comes in many forms. And, as the exhibit shows, there’s a different “winner” and “loser” almost every year. Because of this unpredictability, we remain firm in our belief that a diversified portfolio is one of the best ways to reduce risk and increase the odds of long-term investment success.

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Important information

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice and is intended for educational purposes only.

There are risks involved with investing, including possible loss of principal. Diversification may not protect against market risk.

Index returns are for illustrative purposes only and do not represent actual portfolio performance. Index returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. 

Information provided by SEI Investments Management Corporation, a wholly owned subsidiary of SEI Investments Company.