We woke this morning to the news of a full-scale attack by Russia into Ukraine with airstrikes being carried out on the capital city of Kyiv. While this doesn’t come as a complete surprise given recent posturing, it is unfortunate, nonetheless.
As a result, the S&P 500 started the day by giving back around 2.5% while European markets are currently trading lower by over 4%. On the other hand, domestic bond markets are benefitting from the flight to safety of the U.S. Dollar and U.S. Treasuries with the 10-year US Treasury note yield declining over 5% (bond prices rise when yields fall).
A military strategist I am not, so I won’t use this piece to speculate about the eventual outcome of this territorial dispute. What I do know is how this may (or may not) effect markets and investment portfolios. First and foremost, the best thing we can do right now is not make hasty investment decisions that have an impact on your long-term financial plan.
In previous commentaries I have illustrated that some of the best days in the stock market occur around the same time as the worst days. The implication here is that if you take risk (stocks) off the table or sell everything and go to cash for short-term peace of mind, you are likely to hurt your long-term returns.
Here is a chart from JPMorgan Asset Management’s publication, Guide to the Markets, to demonstrate:JPM
It goes without saying that this is easier said than done. One of my favorite financial writers, Ben Carlson, recently wrote that “When markets are going down, human nature takes the wheel while fundamentals are tied up in the trunk.” I think that illustrates our basic human instinct to react in the face of perceived danger.
Also, if recent history is any indicator, we should take pause before making investment decisions based on the headlines of the day. In early 2020, if you were told that a global pandemic and associated economic shut down was going to happen, my guess is that the most, if not all, people would have said that stocks around the world would be crushed. The S&P 500 finished the year positive 18.4%.
I understand it’s easy to get caught up in current events and I, in no way want to minimize what is going on in eastern Europe at the moment (in addition to rising interest rates, inflation and supply chain issues), but I am confident in our approach to investing for our client’s future. Setbacks and sell-offs are a function of the markets and not a flaw of the markets.
A time-tested, diversified approach to investing has continually climbed a wall of worry and, while I can’t predict the future, I am confident that this approach will continue to serve us well in the future. Rest assured that we are doing all we can in the interim to make sure we weather these periods of volatility.
Please don’t hesitate to reach out to me or your advisor if you have any questions.