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What Impact Can North Korea Have on Your Portfolio?

Ron Joelson •  May 19, 2017 | Your Finances, Ask the Expert

Each month, we book time with some of our company’s top financial brain power to answer questions about investing and your finances. This month we’re talking about political risk and your investments.

Do you have a question for our financial experts? Email it to us at: AskTheExpert@northwesternmutual.com

Ron Joelson

Ron Joelson is Northwestern Mutual's chief investment officer and oversees the company's general account, valued at approximately $200 billion as of June 2016.

Mark McLennon

Mark McLennon is vice president of Investment Products and Services (IPS) Business Development. He oversees the fee-based financial planning program and departmental growth initiatives.

Brent Schutte

Brent Schutte is chief investment strategist of Northwestern Mutual Wealth Management Company. He oversees the investment philosophy for individual retail investors and the investment strategy for more than $100 billion in assets under management as of December 2016.

The following is a summary from our Ask the Financial Expert podcast (listen to the entire podcast below):

Mark: We get a lot of questions about threats that could affect the markets. There are cyber attacks, nuclear tests, confidentiality leaks, all kinds of stuff going on. Specifically, we’ve gotten some questions on North Korea. It seems like there’s a heightened sense of concern there. Ron, should people change their investing strategy based on something like what’s going on with North Korea?

Ron: I’d challenge you to ask yourself what’s really changed. Do you really think North Korea is going to set off a nuclear bomb? I would say the probability has gone up a bit, but it’s gone from a very low number to a slightly less very low number.

You should already be investing with the assumption that a bad event could happen. Assuming that your allocation already takes that into account, other than re-evaluating how much risk tolerance you have, you probably don’t want to change your overall allocations too much.

You may be tempted to make some allocation changes because certain countries and certain industries could be impacted a bad event. But markets generally reflect those concerns.

Mark: Brent, should investors be concerned about geopolitical risk?

Brent: Geopolitical risk always exists. But historically, from an investing standpoint, it hasn’t mattered. If you look at the S&P 500 in 10-year rolling returns from the 1920s to today, there are only two 10-year periods when returns were negative. First is the 1930s during the Great Depression, and the second is 2008, the Great Recession. In between, over 80 years of data, through a world war, Vietnam, presidential assassination, the S&P 500 was always positive on a 10-year rolling basis.

The Great Depression and the Great Recession weren’t geopolitical. Those were periods marked by banking and consumer crisis. Today, banks are in decent shape—as are consumers.

Ron: And when you look at geopolitical events like Brexit, the markets tend to bounce back very quickly.

Hear more from Ron, Brent and Mark in the “Ask the Financial Expert” podcast:

Do you have a question for our financial experts? Email it to us at: AskTheExpert@northwesternmutual.com

The opinions expressed are those of individual investment professionals as of the date stated on this article and are subject to change. This material does not constitute investment advice, is not intended as an endorsement of any specific investment or security and is not a prediction of what will happen in the markets.

Please remember that all investments carry some level of risk, including the potential loss of principal invested. Past performance is no guarantee of future performance. Indices are unmanaged and cannot be invested in directly.

Investors should be aware of the risks of investments in foreign securities, particularly investments in securities of companies in developing nations. These include the risks of currency fluctuation, of political and economic instability and of less well-developed government supervision and regulation of business and industry practices, as well as differences in accounting standards.

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