War between Russia and Ukraine, climbing gas prices, and inflation at a 40-year high: It’s understandable that investors might be edgy these days. Yet, it’s important to recognize long-term investing fundamentals have not changed.
Some may be surprised to learn that historically stocks have been remarkably resilient, even in times of war. Mark Armbruster of the CFA Institute points out the average return for large-cap U.S. stocks during World War II and the Korean, Vietnam, and Gulf wars was 11.4 percent. Current stock market performance has been on par with historical norms.
The Swiss Finance Institute looked at the period from 1926 to 2013 and found stock markets tend to fall in the “pre-war phase,” as forces are massed and tensions rise. Then stocks tend to rise when war breaks out. They call this phenomenon “the war puzzle” because there is no clear explanation for it.
Recently, the U.S. S&P 500 fell significantly in the weeks running up to Russia’s invasion of Ukraine. A month later, stocks had recovered a good portion of the drop.
Once again, we see the basics of good investment management remain valid over time. Investing fundamentals have not changed despite the headlines.
- Work with a trusted advisor and develop a written long-term investment plan aligned with your tolerance for risk.
- Stick with that plan, unless your circumstances profoundly change.
- Stay diversified and stay invested, even when things feel daunting.