Russia's Ukraine invasion marks a significant shift for investors worldwide.

The economic structure of the world has undergone a significant transformation since the conclusion of World War II.

The post-war world aimed to unite national economies to minimize the likelihood of another global conflict, as seen in the establishment of the European Common Market, the collapse of the Soviet Union, China's economic rise, and the expansion of the World Trade Organization to include Russia and over 160 other countries.

H.R. McMaster, former National Security Advisor, stated on CNBC last week that globalization has resulted in a trade-off between supply chain security and efficiency.

The trade resulted in a decrease in costs for consumer goods due to production being shifted to low wage countries, and a decline in global poverty with an increase in average wages in developing nations.

Over the past 30 years, there has been a significant increase in international trade, leading to relative peace and prosperity.

The interconnected global economy positively impacted equity investors by boosting stock markets worldwide.

Despite the presence of boom-and-bust cycles, financial asset returns remained strong during this period. The New World Order was characterized by global growth, rapid technological advancement, and disinflation.

The Great Moderation in the U.S. economy emerged after former Federal Reserve chairman Paul Volcker successfully controlled inflation in the early 1980s, which led to intensified competition among global economies and the rise of pro-growth, free-market policies, resulting in additional gains.

In only two weeks, new questions have emerged regarding the effectiveness of the current economic model, prompting a reevaluation of globalization, inflation, and economic integration as the pandemic, the war in Ukraine, and a more competitive and confrontational China challenge our long-held beliefs.

Economic nationalism on the rise

In the years before the pandemic, deglobalization was becoming a problem as national interests increasingly took precedence over the collective good of the global economy.

National leaders have embraced the "made at home" slogan in various populist movements, including the "MAGA" movement, in both developed and developing economies.

In the aftermath of the pandemic, there may be a resurgence of those movements, particularly as renewed geopolitical tensions with old rivals threaten global alliances while also bolstering regional agreements.

If the global economy becomes more fragmented and countries become more isolated, the consequences could be significant from a productive standpoint.

Generally, domestically made goods have higher prices compared to those produced abroad. This implies that inflationary pressures may shift beyond the pandemic-induced price increases we have already experienced.

The U.S., Europe, and Russia are imposing crippling sanctions and threatening to revoke "most favored nation" status as trading partners, while Russia has threatened to nationalize the assets of Western countries doing business in the motherland.

If Russia continues to pursue its actions in Ukraine, it could lead to a break with China and potentially fracture the global economic infrastructure.

Investing challenges ahead

If these events occur, our investing beliefs, which have guided us throughout our adult years, will be challenged and necessitate a significant reevaluation of our investment allocation decisions.

In the event the course of history veers towards chaos rather than advancement, I lack the ability to utilize any magic or model to apply to my portfolio. As a result, investors will need to become more discerning in their selections and take a more defensive stance against economic changes and the persistent increase in prices.

Investing in domestically oriented entities may become a priority for investors looking to limit overseas investments.

I previously thought that pandemic-induced inflation would quickly subside once global supply chains returned to normal.

The ongoing conflict in Ukraine and China's threats against Taiwan may prolong the disruption caused by Omicron, as countries and businesses prioritize supply chain security over efficiency.

The world is experiencing a moment of history, with significant implications for geopolitics and the economy.

We can either concentrate our efforts on strengthening economic integration or revert to trading blocs on a hemispheric, regional, and local level, which could have severe impacts on both society and the economy.

If the future becomes the past, investment choices will be vastly different. I will provide a blueprint on what to do in future commentaries.

For now, we can hope for a swift return to normal.

History shows that even periods of peace and prosperity can be disrupted by individuals with a narrow focus on resolving past wrongs, rather than working towards a future that benefits everyone.