The Russian stock market’s been hard to look at without tears in recent years. Entirely in line with the broader situation in the country and reflects the public mood.

What should you do in a situation like this – in Russia or anywhere else? Depends on your investment horizon.

1. If it is long – say, 10, 15, 20 years or more – you can essentially do nothing at all. Just keep investing in stocks, understanding that price fluctuations, stagnation, and drawdowns are a normal part of the process – the price you pay for the potentially higher long-term returns of equities as an asset class. Perhaps the only thing worth striving for is to select good stocks and improve portfolio efficiency when possible.

2. If you’ll need the money in one, two, or three years, there is little to recommend other than bonds. One advantage of the Russian market in its current state is that rates remain relatively high – relative to official inflation. Thus, even the current 13–14% yields on bonds are above the official inflation rate of 6.3% and provide a positive real return. At least on paper. It’s important to understand though: bonds are debt. And on the other side of that debt there is always someone obligated to repay it. Obligated on paper – in reality high rates do not come from nowhere. All rates move more or less with the key rate, and an unusually high yield may simply mean the issuer cannot borrow more cheaply. No one is willing to lend to it on better terms. A company does not agree to borrow at a high rate because things are going well.

3. The third option is asset allocation. A strategy built around allocating capital across different asset classes. A portfolio that includes several different asset classes should work particularly well during periods of turbulence (and lag the stock market during periods of its rapid growth).

4. And finally, algorithms. With a properly constructed algorithmic portfolio, you can also navigate the current environment quite comfortably. A little later I’ll write a longer article about how an algorithmic portfolio works for me (spoiler: pretty well, I like it).