The conflict in Ukraine has unsettled people and markets around the world. However, geopolitical risk has always been a constant feature of world politics and Russia’s invasion of Ukraine is the latest example of this.
A strong investment plan, like the ones I’ve constructed for you, is designed to withstand periods of volatility so you don’t have to react. They have diversification and professional management, to name a few things, that can help manage short-term risks while pursuing long-term rewards. With that in mind, I wanted to share some evidence that shows how markets typically respond to acts of war. The chart below looks at how U.S. equity markets have historically reacted in response to acts of war and terrorism.
What you’ll notice is that market declines tend to be short. They typically last 5-11 days, depending on the situation. The actual change in the market is also relatively benign, and often more muted than what investors might think. In fact, historically they’ve been more muted than the decline in U.S. equity markets experienced in January of this year.
Of course, no one can predict with certainty how financial markets will react during a war or other conflict. However, one thing is clear; having a long-term view is likely your best ally in times of crisis.
The Russia-Ukraine situation remains fluid. This will continue to dominate headlines and be a driver of market volatility in the coming days and weeks and I am monitoring the situation as it unfolds.
My thoughts go out to those most impacted by the conflict.