Russia/Ukraine Conflict

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▪ After weeks of escalating tensions, the Russian military invaded Ukrainian borders

▪ Russian President Putin is trying to strong-arm the West into revisiting post-Cold War security arrangements with Europe

▪ As risk assets decline and emotions run high, investors should be cautious about making drastic portfolio changes

Overview

Prior to Russia’s recent invasion of Ukraine, financial markets had already started to discount the potential of a full-scale war, while at the same time, higher growth equities (Tech) and more speculative assets (“Meme” stocks, cryptocurrencies, SPACs, etc.) displayed the negative effects of potentially higher short-term interest rates in the US, as the Fed turns hawkish.

Keeping things in perspective

Investors should recall that in recent years, stock market returns have been well above long-term averages. The MSCI All Country World Index has generated an annualized 13.3% return over the three years ending 2/23/22. Over the same period, the S&P 500 had an average annualized return of 16.8%. Investors that adhered to their strategic investment plans benefitted from the tailwinds of financial assets during a period when monetary and fiscal policy were particularly supportive.

Drawdowns happen

During periods of low market volatility, it is easy to forget that corrections happen quite frequently and during any given year it is not uncommon for equities to selloff 5% – 10%. In the past 41 years, EVERY YEAR has had an intra-year decline but in 34 out of those 41 years the market went on to be positive for the year.

That said, staying the course is not easy when bouts of volatility can be driven by a multitude of different factors. Right now, a geopolitical shock is taking hold and the longer-term implications are hard to quantify with any degree of certainty.

What happens next?

It is still too early to tell if this offensive will evolve into a protracted military conflict. Putin has described this invasion as a “special military operation,” but claims to have no plans to occupy the region. Russian citizens could soon start to feel the effects of retaliation from the West, as sanctions drive Russian interest rates materially higher, the Ruble declines and inflationary pressures escalate. This could undermine Putin’s resolve.

Key factors we are monitoring:

▪ Higher oil, gas and wheat prices if supply is disrupted

▪ Further supply chain bottlenecks and inflationary pressures

▪ Decline in consumer confidence

▪ Moderation in the pace of monetary tightening

▪ The impact of sanctions on Russia

▪ Whether China wavers in supporting Russia

Portfolio positioning

Making wholesale changes to a strategic portfolio during periods of high market volatility has generally proven to be injurious to long-term portfolio outcomes. Similarly, trying to time the market always requires two decisions – when to get out and when to get back in. Missing the 10 or 30 best days can materially impact portfolio growth over time.

Disclosures and Legal Notice

The views expressed herein are those of Asset Consulting Group (ACG). They are subject to change at any time. These views do not necessarily reflect the opinions of any other firm.

This report was prepared by ACG for you at your request. Although the information presented herein has been obtained from and is based upon sources ACG believes to be reliable, no representation or warranty, express or implied, is made as to the accuracy or completeness of that information. Accordingly, ACG does not itself endorse or guarantee, and does not itself assume liability whatsoever for, the accuracy or reliability of any third party data or the financial information contained herein.

Certain information herein constitutes forward-looking statements, which can be identified by the use of terms such as “may”, “will”, “expect”, “anticipate”, “project”, “estimate”, or any variations thereof. As a result of various uncertainties and actual events, including those discussed herein, actual results or performance of a particular investment strategy may differ materially from those reflected or contemplated in such forward-looking statements. As a result, you should not rely on such forward-looking statements in making investment decisions. ACG has no duty to update or amend such forward-looking statements.

The information presented herein is for informational purposes only and is not intended as an offer to sell or the solicitation of an offer to purchase a security.

Please be aware that there are inherent limitations to all financial models, including Monte Carlo Simulations. Monte Carlo Simulations are a tool used to analyze a range of possible outcomes and assist in making educated asset allocation decisions. Monte Carlo Simulations cannot predict the future or eliminate investment risk. The output of the Monte Carlo Simulation is based on ACG’s capital market assumptions that are derived from proprietary models based upon well-recognized financial principles and reasonable estimates about relevant future market conditions. Capital market assumptions based on other models or different estimates may yield different results. ACG expressly disclaims any responsibility for (i) the accuracy of the simulated probability distributions or the assumptions used in deriving the probability distributions, (ii) any errors or omissions in computing or disseminating the probability distributions and (iii) and any reliance on or uses to which the probability distributions are put.

The projections or other information generated by ACG regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Judgments and approximations are a necessary and integral part of constructing projected returns. Any estimate of what could have been an investment strategy’s performance is likely to differ from what the strategy would actually have yielded had it been in existence during the relevant period. The source and use of data and the arithmetic operations used for calculating projected returns may be incorrect, inappropriate, flawed or otherwise deficient.

Past performance is not indicative of future results. Given the inherent volatility of the securities markets, you should not assume that your investments will experience returns comparable to those shown in the analysis contained in this report. For example, market and economic conditions may change in the future producing materially different results than those shown included in the analysis contained in this report. Any comparison to an index is for comparative purposes only. An investment cannot be made directly into an index. Indices are unmanaged and do not reflect the deduction of advisory fees.

This report is distributed with the understanding that it is not rendering accounting, legal or tax advice. Please consult your legal or tax advisor concerning such matters. No assurance can be given that the investment objectives described herein will be achieved and investment results may vary substantially on a quarterly, annual or other periodic basis. There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information.

Gryphon Financial Partners shall not in any way be liable for claims and make no expressed or implied representations or warranties as to their accuracy or completeness or for statements or errors contained in or omissions from them. This was created for informational purposes only. Gryphon Financial Partners, LLC is an Investment Adviser.

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