Our hearts and prayers go out to the courageous people of Ukraine as we watch the brazen attack by Russia unfold. It’s difficult to watch. Along with the general horror that war brings and the impact of lives lost, there is a general worry about economic consequences and effects of this invasion on the rest of the world, including the U.S.
During turbulent times like these, it’s not unusual to wonder, “Will I be okay financially? How will this affect my family? Should I make changes to my portfolio?”
Let’s look at world history and how wars have impacted markets in the past.
The largest historical drawdown due to war was in conjunction with Nazi Germany’s entry into what was then the Czechoslovakian nation in 1939, and the attack on France in 1940. The S&P 500 fell by 20.5% and 25.8% respectively during the following 22 trading days.
One year after these instances, the market was up almost 19% and 9.2% respectively, eliminating much of the drop (Source).
On average, the S&P 500 has been 6.5% in negative territory 3 months following an armed conflict (either global or smaller), and around 13% positive 12 months after said conflict (Source).
Click here for additional examples and an in-depth analysis of how the markets react to war.
Dealing with volatility that comes with global uncertainty can be difficult for investors who have been used to seeing market gains. If you’re feeling worried and uncertain about your investments and your future, here are three things you can do:
- Review your emergency reserve strategy.
Do you have 3-6 months’ worth of basic living expenses set aside in an emergency reserve account? Among other things, having cash at your disposal earmarked for unexpected expenses can help save you from potentially having to liquidate assets at a loss or sell investments in a down market.
- Stress-test your portfolio to see if you can withstand a significant correction in the market.
Many of our clients find it reassuring when they stress test their plan to see how an immediate 20% or 30% drop in the market could impact their plan’s probability of success. Stress testing your plan can help answer questions like “What will happen to my portfolio if…”
- The markets dropped immediately by 20-30% or more?
- Social Security was reduced?
- Inflation was higher in the future?
- My investment returns were 1-2% below what I expected?
- Tax rates increased?
- I live longer than planned?
- Health care costs increased?
If you’re an existing client, click here to log in to Right Capital, then click on Stress Test.
**Past performance does not guarantee future results
- Be careful about trying to time the market!
We get it. Market volatility and big moves in the stock market can cause emotional reactions, possibly making you consider selling stocks in your portfolio. However, even professional investors have difficulty trying to time the market.
Don’t forget, when you try to time the market, you have to guess right twice – when to get out and when to get back in. Click here to read more about how adopting a long-term perspective can help change how investors view market volatility and help you look beyond the headlines.
Click here to read more about what you can do if you’re feeling worried or stressed about market volatility. Or, don’t hesitate to schedule an initial consult with One Life. Together, we can create a plan that can help you feel secure about your future, even during difficult times. Our 90-minute consultation is always at no cost to you!
Click here to schedule a consultation.