NATO Leaders Flex Muscle to Avert a $1.5 Trillion War
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Hi, this is Milda Seputyte in Vilnius and Alberto Nardelli in Brussels. Welcome to our weekly newsletter on what's shaping economics and investments from the Baltic Sea to the Balkans. You can subscribe here.
To much fanfare in the Hague this week, NATO leaders agreed to boost defense spending to 5% of gross domestic product and renewed their 'ironclad commitment' to mutual security. It was a win for Donald Trump, who has lambasted his European allies for underspending. In return, the US will remain committed to collective defense should a member come under attack.
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Investors panicked in April after President Donald Trump announced sweeping new tariffs. Fears that the levies would reignite inflation and spark a global trade war drove a 19% top-to-bottom decline in the S&P 500. Trump followed with a series of months-long pauses on many of the tariffs. The market shook off the initial shock, and things have been relatively placid since. Even after a new round of tariffs went into effect in August, and even though the Federal Reserve has yet to slash interest rates as many investors had hoped, the broad U.S. stock market is up more than 8% so far on the year. But don't expect the smooth sailing to last forever. "We're going to see volatility," Wei Li, chief investment strategist at the BlackRock Investment Institute told CNBC Make It shortly after the midyear mark. "We're going to have headlines creating a lot of uncertainty and markets have the tendency of being carried away one way or another, both on the downside and on the upside." 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Online questionnaires, such as this one from Vanguard, can also help you understand how you emotionally handle a potential loss in your portfolio. Understanding your risk tolerance is crucial because examining your relationship with risk and how your investments align with it can help you avoid emotionally driven decisions down the road, experts say. It may also behoove you to work with a financial planner, who will be able to walk you through how your portfolio would react under different market conditions and make personalized recommendations based on your goals. "Asset managers have tools today that can look at 20, 30, 50 different kinds of scenarios and stress-test a portfolio and ask, based on all of the underlying holdings, how will this portfolio behave if X, Y and Z occurs," says Paul Brahim, a certified financial planner and president of the Financial Planning Association. 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If you're 22 and investing for retirement, you can afford to undergo major losses in your portfolio, with the assumption that things will have decades to recover and continue growing. If you plan to retire and start living off your portfolio this year, a 50% decline in the stock market is a huge blow to your lifestyle in retirement. In short, the sooner and more important your goal, the less volatility your portfolio can withstand. Even if you're young and still decades away from a long-term target, you may still feel queasy about risk — and that's worth discussing with a financial advisor. But if you can stomach it, volatility can be a plus for younger investors, says David McInnis, a certified financial planner and managing partner at Aristia Wealth Management. "In the scenario of markets going lower due to volatility, that's a gift, in my opinion, to the younger person," he says. 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