As COVID-19 headlines give way to Russia’s invasion of Ukraine, the news has triggered an emotional response from people, including investors, worldwide. For our clients, we know these developments can be stressful.
Russia’s assault on February 24 represents an aggressive escalation of long-simmering tensions between the two countries. The attack is an important reminder that geopolitical risk is a part of investing in global markets. The reaction has been immediate, with fixed-income and equity indexes experiencing volatility while oil and gas prices have surged. While there is still much unknown regarding the extent and outcome of the Russia-Ukraine conflict, markets have prior experience with geopolitical clashes.
From a historical perspective, markets tend to brush aside geopolitical events with relatively minimal declines (see the chart below). The average total drawdown has been less than 5%, and recoveries have been swift, with the average being 43 days. As many would expect, the more severe the event, the greater the impact on the market. For example, the S&P 500 was down a total of 11.6% in 11 days after the 9/11 terrorist attacks. However, the market fully recovered to prior highs in a total of 31 days. While no two situations are alike, geopolitical selloffs are usually short-lived.
Although this conflict is complicated, we do not believe it should influence investment decision-making. We have lived through many geopolitical crises, and capital markets have rewarded the disciplined investor. Adjusting your portfolio frequently in response to current events may—counterintuitively— introduce more stress, which can affect your overall investment experience.
We can never be sure how a single event will impact the markets, and that’s why we believe it’s essential to take a long-term view during uncertain times. Even though the financial aspect remains unclear, the human toll is certainly more concerning. We hope for a peaceful resolution quickly.
Should you have any questions, please don’t hesitate to reach out to your Resource Consulting Group advisor. We’re here to help.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. This information is for educational purposes only and should not be considered investment advice or an offer of any security for sale.