Over the past few weeks, the world has watched as events have unfolded in the Crimean peninsula. Will Crimea be allowed to secede and join Russia? Will there be a civil war? Will other nations be dragged into the situation?
Here’s the truth: the brokers don’t care what you do as long as you sell and buy something. Brokerages make money on fees that they charge whenever you buy an investment and whenever you sell an investment.
Buy Russian stocks? Sell Russian bonds? Buy Russian currency? Sell Russian index funds? As long as you’re buying or selling, the brokers make money.
Whenever a world event happens, every brokerage business out there is going to be suggesting some sort of financial response to the news. Buy this. Sell that.
It can be tempting, during a period of uncertainty, to listen to that advice. If Russian stocks or currency are low right now, it might make sense to buy in. On the other hand, if they wind up in the middle of a regional conflict, prices might very well continue to drop.
Here’s the thing to remember, though. Any person working for a brokerage makes their money when you buy and sell. Period.
On the other hand, they don’t make money if you just sit on what you have and don’t make a transaction.
So, naturally, their advice is going to lean toward taking some sort of action. They’ll probably suggest whichever option – buying or selling – would work the best, but it doesn’t make financial sense for them to encourage you to stay put. They don’t make money that way.
Another problem is information. Unless you have an incredibly deep insight into the situation in Crimea, to the point that you have pieces of information that the large brokerages and news organizations don’t have, they’ve already beaten you to the punch. Unless you’re on the ground there or have relatives in the Kremlin or something, you’re going to learn about this situation far later than people who have large sums of money at stake.
Here’s the truth: unless you’re a professional investor, your decision about investments should always be made long before the latest news pops up. You should know that there’s some risk of bad news (driving the price down) and some potential for good news (driving the prices up). You should also know that the big boys will have already made their moves by the time you even hear of the news, whether it’s good or bad.
In other words, if you’re open to enough risk in your investments that you already own Russian stocks or bonds or currency, this event shouldn’t change what you’re doing. Not only did you already know that there was risk involved, you also don’t have any idea as to the long-term outcome of the situation. For the average American, investment in anything in Russia is a pretty high-risk investment, so having a major event there shouldn’t be a shocker.
This philosophy is true any time you hear someone on television telling you to “BUY!” or “SELL!” If they’re employed by an investment firm, they generally make a lot more money when you do “BUY!” or “SELL!” Plus, as an individual investor, you’re far better off figuring out a “buy and hold” plan and sticking with that plan.