Iran x Israel conflict: four essential questions for you to understand how to manage your investments at this time – 04/14/2024 – From Grain to Grain

In times of geopolitical conflicts, investors are faced with a crucial dilemma: the decision between selling their positions immediately to minimize potential losses and migrating to assets considered safer, such as gold and the dollar, or maintaining their current positions betting on a market recovery. .

While the first option may seem attractive in the face of fear and uncertainty, acting hastily can lead to suboptimal decisions, such as selling valuable assets at low prices, missing recovery opportunities, and acquiring assets that have already appreciated in value and may end up generating losses with a reversal.

This is the dilemma many face: act quickly to protect capital or remain calm and wait for potential stabilization, which could benefit those who endured the initial volatility.

Given the complexity of these scenarios, some questions gain importance to help investors navigate uncertainties with greater security and strategy. Let’s explore these questions and answers that can guide investors during these turbulent times.

What usually happens with variables such as interest, currencies (Reais/dollar) and the stock market?

In times of conflict, it is common to see an increase in interest rates as a reaction to investors’ perception of greater risk. The currencies of emerging countries, such as the Real, tend to depreciate against the dollar, which is considered a safe haven currency. The stock market often suffers declines, reflecting fear and uncertainty in the market. These reactions are part of the market’s response to uncertainty and perceived risk, leading to a flight to assets considered safer.

However, all of these reactions, if they occur, are short-term. They only persist if the scenario continues to deteriorate and the conflict contaminates key economic variables such as growth and inflation. Therefore, it is very important to remain calm and maintain a long-term strategic vision for the portfolio.

What to do if I have applications referenced to the IPCA?

Investments linked to the IPCA are often seen as a hedge against inflation. In periods of conflict, if inflation is impacted by currency devaluation or other economic factors, maintaining these investments can be beneficial. However, in the short term, the increase in interest rates mentioned above due to increased uncertainty could negatively impact bonds. Adjustments may be necessary depending on the investment horizon and the evolution of the economic scenario.

What to do if I have variable income investments such as shares or real estate funds?

In scenarios of high volatility and uncertainty, such as those generated by conflicts, variable income can be particularly affected. For those who own shares or real estate funds, the recommendation is to review the composition of these investments, focusing on the quality and resilience of the assets. Also, analyze whether the exposure is aligned with the investor’s risk profile. Assess whether it is time to reallocate part of your capital to less volatile assets or whether it is feasible to maintain your current position, always considering your risk profile and long-term objectives. Remember, leaving the market in times of stress is usually not the most appropriate attitude.

How should I proceed with the portfolio to suffer less?

In periods of high uncertainty and volatility caused by geopolitical conflicts, one of the most prudent approaches is to reevaluate the time horizon of your investments. If your portfolio is experiencing significant negative impacts in the short term, it may be strategic to evaluate which positions still make sense to hold based on your long-term outlook and which may require a tactical exit to avoid larger losses.

Another important measure is to strengthen the cash position. This not only protects against the need to sell depreciating assets in an unfavorable market, but also sets the stage for taking advantage of buying opportunities that often emerge during periods of uncertainty and devaluations. Maintaining a more substantial liquidity reserve can be crucial to getting through the period of turbulence without compromising long-term strategic investments.

Additionally, it may be useful to implement stop-loss in particularly volatile, leveraged or high-risk positions to limit potential losses. This is a tool that automatically sells an asset when it reaches a specific price, helping to avoid larger losses if the market continues to decline.

Finally, staying informed and attentive to market and conflict developments is essential. Informed decisions are always more effective and are often the timing of these decisions that differentiates results in periods of crisis. Continuously assessing the economic and political landscape can provide crucial information to quickly adjust strategies as needed.

By remaining calm and following a well-thought-out, strategic, long-term strategy, it is possible to navigate periods of crisis with greater security and potentially emerge in a stronger financial position when stability is restored.

Michael Viriato is an investment advisor and founding partner of Investor’s House.

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