The crisis in Ukraine is hitting markets across the world. Russia has effectively taken over the Crimea region, and now everyone is holding their breath for what comes next.
Russia's flagship stock market index the Micex slumped 11% yesterday. The DAX in Germany fell 4%. Even the Dow Jones index ended up down 0.9%.
The only beneficiaries were safe haven' assets such as bonds and gold.
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So what should you do?
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Is it time to sit tight and do nothing? Or to switch money into safe havens?
Or should you be bold and go bargain hunting?
The most likely outcome of this crisis
Let's start by taking a closer look at where we stand.
All-out war with the West still seems very unlikely. The most likely outcome is something similar to what happened in Georgia six years ago, after the Russians marched into that particular country.
Following an EU-brokered ceasefire, Russian troops remain in South Ossetia. Georgia has no control over the territory. Although few countries recognise South Ossetia as an independent country, Russia has effectively won.'
If Vladimir Putin can limit his ambitions to a similar victory in Crimea, this crisis might be fairly short-lived.
But if Putin decides to take military action in eastern Ukraine as well as Crimea, it could all get pretty scary. We might see a long, Yugoslavia-style civil war in Ukraine.
But even if that happens, I think the West will probably resist the temptation to get involved at a military level.
What kind of impact would sanctions have?
However, some form of sanctions looks very likely. Even if Putin makes no move in eastern Ukraine, Russia could be expelled from the G8. The US might impose some fairly serious economic sanctions.
The EU, by contrast, is less likely to impose major sanctions, as Russia and Western Europe are both very dependent on each other. According to Russian government data, more than half of Russia's revenue comes from the oil and gas industry and around 80% of Russia's energy exports go to the EU.
Meanwhile, about a third of the EU's oil and gas supply comes from Russia. Germany and the Netherlands are especially dependent on Russian energy. So Europe will be very reluctant to expose itself to retaliation on that front.
However, even sanctions imposed by the US could hurt Russia. Its economy is already suffering. The Russian central bank has already raised its official interest rate from 5.5% to 7% in an attempt to prevent further falls in the rouble the currency fell by 2% against the dollar yesterday.
Meanwhile, Ukraine's economy is in an even more worrying state. It's on a precipice and needs $25bn from the West immediately in order to roll over various debts. Further cash injections will be needed later.
Western governments and the International Monetary Fund will be able to find cash for Ukraine. But that will reduce the funds available for bailouts elsewhere. As a result, the crisis may slow down the eurozone's nascent economic recovery.
What should you do now?
So should you sell all your shares and pile into traditional safe havens such as bonds and gold?
As a general rule, panic selling in a crisis isn't a good idea. I've done it in the past and lost money.
That said, I'm 46 years old and I'm investing in the stock market to pay for my retirement. I'm investing on a 20-year horizon, which means I can afford to stay invested for the long-term and ride out the storm. And that's what I'm going to do.
However, if you're older, or you think you might need cash from your stock portfolio in the next two or three years, you could consider selling some of your shares. Don't go mad though. Remember, the most likely scenario is that we'll be pretty much back to normal in six months.
If you do sell some shares, you probably shouldn't reinvest the cash in gilts or other bonds. Yes, they're a traditional safe haven, and that means gilt prices will probably rise in the near future. But on most metrics, they look expensive, so in my view, gilts are not a low-risk investment at the moment.
Gold is another traditional safe haven. The gold price rose by 2% yesterday, and I'm pleased that I made my first small investment in it last month. We've said for some time that gold can provide useful portfolio insurance in a crisis it's fulfilling that particular function rather well right now.
So further modest investments in gold look sensible to me, although we'd still suggest that 10% is about the right level to have in your portfolio.
Is this the time for bargain hunting?
Energy prices look set to rise if the crisis goes on for long. Oil prices surged yesterday. If this continues, it may be worth investing in oil companies that have little or no exposure to Russia.
Tullow Oil (LSE: TLW) is a good example. It's a substantial production and exploration business with interests in many areas of the world, but absolutely nothing in Russia or Ukraine.
However, if you are tempted to invest in Tullow, or to pick up any other stock market bargains, you might be wondering about timing.
I fear that things will get worse before they get better. So it may be worth holding off for now. History suggests that in a major geopolitical crisis, the best approach is to hold back and wait until the crisis reaches some form of climax, and then invest.
For example, in the 1991 Gulf War, share prices only started to rise once the bombing of Baghdad had begun and victory for the US looked certain.
Meanwhile, the bravest bargain hunters may be tempted to buy some Russian shares. Personally, I've never invested directly in Russia and I'm not tempted to dive in now. I've got plenty of risk elsewhere in my portfolio.
But don't get me wrong. As my MoneyWeek colleagues have pointed out several times in recent months, Russian stocks look very cheap.They're cheaper still now. So if you invest in Russia at the moment, there's a decent chance you'll make a good profit. And if you already own Russian shares, you should probably hang on.
We'll have more on the crisis and the fallout in the next issue of MoneyWeek magazine, out on Friday. You can pick up your first three issues free here if you're not already a subscriber.
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