Welcome to the March edition of FAQs and RAQs!

Here we tackle client questions—some asked Frequently, others Rarely.

FAQ: How should investors respond to the war in the Middle East?

There have been no fewer than thirty significant wars over the past century. While each one is different, they tend to play out in a familiar pattern in financial markets. Here are five takeaways from those previous episodes:

1. Don’t overreact. Markets often sell off in the days, weeks, or months following the onset of a military conflict. But those sell-offs have always been temporary, and markets often bottom well before a conflict ends.
2. Don’t over-predict. Wars are inherently unpredictable. Trying to maneuver your portfolio around short-term predictions about how a conflict will unfold is difficult and often backfires. 
3. Remember what drives the market. Ultimately, markets are driven by corporate profits. The key question for investors during a war is simple: Will companies still find ways to make money? We believe the answer is yes. 
4. Remember what you own. We aim to own quality investments—the kind that may go down in price, but are unlikely to stay down in price.
5. Remember why you own it.  We own stocks in your portfolio to meet long-term spending needs. Short-term needs are met with bonds or cash. By the time you need the money allocated to stocks, we feel confident saying the market will likely have rebounded, regardless of how events unfold in the short term in the Middle East.

Above all, there’s no substitute for patience and a long-term approach to investing.

RAQ: Are some Exchange Traded Funds too risky to purchase because of complicated structures?

Exchange‑traded funds have become one of the most useful tools available to investors. They’re transparent, tax‑efficient, and generally easy to trade. But like anything in markets, not all ETFs are created equal

While most ETFs are straightforward index funds that do what you expect them to do. Others use derivatives, leverage, or complex structures that can behave very differently from the headline exposure on the label. Those products aren’t necessarily “bad,” but they require more homework and a clear understanding of the risks.

Additionally, don’t assume all ETFs are equally liquid. Most broad, plain‑vanilla ETFs trade smoothly because their underlying holdings—large U.S. stocks or investment‑grade bonds—are extremely liquid. Others hold securities that trade far less often, like bank loans, frontier‑market equities, or niche commodities. When the underlying market is thin, the ETF can still trade, but the price may move more sharply, especially during periods of stress.

Overall, ETFs remain attractive investment vehicles. But, as with any investment, a little homework goes a long way, especially when structures get more complicated and liquidity becomes less certain.

Have a question?

Drop us a line at carlsongroup@rwbaird.com. We’d love to hear from you!

All investments carry risk, including loss of principal. Past performance is not a guarantee of future results.