Sticking with Your Investment Plan During Turmoil
“History Doesn't Repeat Itself, but It Often Rhymes” – Mark Twain.
Like many of you, last Thursday when I woke up, I read the news that Russia had invaded Ukraine. The destruction, disruptions, and consequences of this invasion are very real, especially for those with friends or family impacted in the region. On a personal level, we struggle to wrap our minds around what it must be like for the people on the ground in Ukraine and feel deeply for what they must be going through.
On that note, for those wondering how to help with humanitarian relief efforts, we suggest Charity Navigator as a good starting place to identify highly-rated nonprofits providing relief/recovery efforts in and around Ukraine.
From a financial perspective, you might also have questions about how recent events have impacted equity (stock) markets, and your portfolio.
In the very short term, volatility has increased, with both upward and downward movements in the market. While no one can say for certain what will happen in the coming days, we can use historical data to provide perspective. In short, equity markets have a history of absorbing and recovering from geopolitical events.
The figure below shows various geopolitical events spanning the past 60 years and how U.S. stocks have behaved immediately, 6 months, and 1 year after the event in question. In 7 of the 8 examples, U.S. stocks initially reacted negatively to the uncertainty. However, 6 months and one year after the events, stocks were up varying degrees, with one exception being President Nixon’s impeachment proceedings.
If we expand our view to global equity markets, we see a similar pattern across the timeline below. Stocks respond to world events by going up and down, sometimes drastically, in the short-term, but the long-term trend has continued to be upward.
You may recall how you felt during some of the events in this chart. If you were invested during any of these periods, you likely remember that the ride wasn’t always smooth. But if you remained invested, you benefitted from sticking to your investment plan.
Two roles we at Woodward Financial Advisors play in our clients’ financial lives are as educators and as emotional surge protectors. We help our clients take the long view of the markets and work with them to build an investment plan that can withstand whatever might come. As we implement those investment plans, part of our role is helping to encourage discipline, especially when something like Russia’s invasion of Ukraine comes to pass.
Two years ago, COVID’s impact on the world markets grabbed headlines. Today and tomorrow, the war in Ukraine will take center stage. We hope for a swift and peaceful resolution to this war, but whatever happens, we will continue to support our clients and add perspective as we navigate the crisis of the day. Sometimes, that means looking to the past to see how today’s crisis might “rhyme” with the happenings of the past and using that to inform our best response today.
Written by Austin Brown, CFP®