Marty from Batavia: What’s your take on the Russia situation? Should I be concerned about stocks?
A On our "Simply Money" radio show, we like to remind our listeners that Wall Street hates uncertainty. And, without a doubt, the upheaval in Europe certainly qualifies as ‘uncertain.’ The fluid situation – and the accompanying headlines – are currently what’s driving the markets, which is why you’re seeing such turbulence from day-to-day; markets have gone from declining almost 2% on one day to climbing more than 2% the next. It’s the ultimate whiplash for any investor.
The key during times like this is to remain calm and to not make any knee-jerk decisions. And, yes, we know this is difficult. But if your first instinct when things get choppy is to get out of the market, you’re then playing the potentially dangerous game of market timing. Because when will you get back in? Do you know for certain when the market will ‘bottom?’ It’s not likely.
Plus, remember, volatility is normal. Markets will go up. Markets will go down. It’s essentially ‘the cost of entry’ you pay when investing in stocks. Consider this: According to our data at Allworth Financial, since 1980, large U.S. company stocks have experienced an average of a 14% pullback every year. Yet, despite this regular turbulence, overall annual returns were still positive 83% of those years.
Also, keep in mind that while the Ukrainian situation is no doubt a horrifying humanitarian crisis that will likely scar Eastern Europe for years to come, markets don’t view it that way. In fact, as we look back at the major, world-changing geopolitical events since 1941 – the attack on Pearl Harbor, the Cuban missile crisis, the Iraqi invasion of Kuwait, September 11th, etc. – we find that the average market losses are only about five% on the day of the event. And even more importantly, it took a mere 35 days (on average) to fully recover those losses. So, while stocks may experience losses from day-to-day or even week-to-week during this invasion, it’s important to remember that markets have historically always bounced back.
And there’s one more bit of good news we want to mention: According to our Allworth Recession Index, the risk of a recession here in the U.S. is still low in the near term. Yes, we’re experiencing 40-year-high inflation rates and we don’t want to diminish that fact. But as we look at other leading economic indicators – things like housing starts, jobless claims, and consumer confidence – the economy is actually on quite stable ground right now. So, if a major shock should hit markets or even the global oil supply, the U.S. economy is positioned well to weather it.
Here’s The Simply Money Point: During times like these, do not let your emotions take over. If you have the proper investment mix, we encourage you to stick with your plan and remain disciplined. But if you’re having trouble sleeping at night, then it might be wise to reevaluate your investment strategy.