January Market Update - Geopolitical Tensions

The arrest of Venezuelan President Nicolás Maduro by U.S. forces has captured headlines and raised questions about what it might mean for your portfolio. While the humanitarian consequences are most important, there are also questions about how this might affect financial markets. I wanted to reach out to provide some perspective on how we're thinking about this situation in the context of your financial plan. The short answer is that history shows us these events rarely have lasting market impact, even when they feel significant in the moment.

From an investor viewpoint, the most important lesson from history is that geopolitical shocks tend to create short-term volatility but don't typically change the direction of markets over the long run. We've seen this pattern repeatedly in recent years with conflicts in Ukraine and the Middle East. This is because geopolitical events can temporarily affect sentiment and commodity prices, but they rarely alter the underlying drivers in a lasting way.

The Oil Price Connection

President Trump has also stated that the United States will work to expand Venezuela's oil production. For context, Venezuela possesses the world's largest proven oil reserves, even more than Saudi Arabia. However, decades of mismanagement have reduced the country's oil production to less than 1 million barrels per day, compared to the U.S. at nearly 14 million.

The primary way geopolitical events affect portfolios is through commodity prices, particularly oil. This situation is different from Russia's invasion of Ukraine in 2022, which disrupted existing supply and pushed oil prices to nearly $128 per barrel. That crisis worsened inflation and sent gasoline prices above $5 per gallon.

In contrast, increased Venezuelan production would likely place downward pressure on oil prices over time, which could actually be positive for consumers and the broader economy. Current oil prices remain subdued, trading around $60 per barrel, well below historic peaks. Major U.S. oil companies may also benefit as they access these reserves, but this will also take time to play out.

Your Portfolio Is Not Directly Exposed to Venezuela

Venezuela plays essentially no role in global financial markets. The country's stock market is small and illiquid, and it's not included in major emerging market indices. Most investors have minimal or zero direct exposure to Venezuelan stocks.

Additionally, Venezuela has been in default on its bonds since 2017, so there's minimal exposure through fixed income markets. Any portfolio effects would come indirectly through oil price movements or broader market sentiment rather than direct holdings.

What This Means for Your Financial Plan

The situation in Venezuela will continue to evolve, and there may be additional developments that capture headlines. Rather than trying to predict exactly how things will unfold, investors should focus on what can be controlled.

Specifically, your portfolio is invested across asset classes, sectors, and geographies to weather geopolitical uncertainty. Similarly, your financial plan is built for the long term and designed to navigate periods of uncertainty without requiring reactions to every news event.

Geopolitical risk is a normal part of investing. What matters most is maintaining perspective and staying focused on your long-term goals rather than responding to short-term headlines.

As always, I'm here to discuss how these developments might affect your specific situation. If you have questions or concerns in light of recent events, please don't hesitate to reach out.