Financial Focus Stay Invested During Turbulent Times
Military conflict has created a wide range of important concerns for Americans. Among them are questions regarding the likely impact on the financial markets and investment performance. As an investor, those questions may include: “What will war mean to the stock market?’’ “Will the market rally when war is over?’’ And, perhaps: “Should I pull my money out?’’
These are difficult questions. Let’s look at each of them:
What impact does war have on the market? No one can accurately predict the precise impact of a war on the financial markets. Military action does not follow a predictable script. Factors such as the length, severity and aftermath of a war have a great deal to do with how the market reacts. Events leading up to war almost always create uncertainties and fears that push stock prices down.
During the Gulf War, for example, the market sold off leading up to the conflict, then rallied when war actually began.
Will the market rally when the war is over? Like the first question, there’s no easy answer to this one. We can’t be certain that history always repeats itself. But think back to 1990, just before the Gulf War. We had rising oil prices, the threat of war and the Dow reached a new low in October 1990. Many felt the market was a terrible place to be. This sounds pretty familiar today. That’s why it’s important not to let short-term crises and conflicts derail your long-term investment plan. Following the Gulf War, one of the greatest bull markets of all time lay just around the corner. This bull market helped quadruple the Dow over the next 10 years.
Should I pull my money out of the market? As an investor, you might feel tempted to pull your money out of the financial markets if you were convinced that a war was going to cause a significant downturn. But, first, recognize that military events are unpredictable and should not be the basis for investment decisions. In addition to the outcome of any military action, other factors - including economic growth, the growth rate of corporate profits, the level and direction of interest rates and investor psychology - will likely determine the course of stock prices in the years ahead.
If history is any guide, the market eventually recovers from short-term crises. While no two events are the same, the long-term trend in the market has historically been positive.
This scenario suggests that if you’re on the investment “sidelines’’ when the market begins to recover, you could miss out on some strong growth opportunities - so stay invested.
Should you make any adjustments to your portfolio in response to war? Investing is about developing a plan and sticking to it. Investors who make long-term investment decisions based on guesswork or short-term fears often fall short of their financial goals.
It’s difficult to conduct “business as usual’’ during a wartime atmosphere. But if you can maintain your investment focus and discipline, you’ll still be on track toward achieving your financial goals when peace and calm return again.
This article was submitted by the financial representatives of Edward Jones in Hagerstown: Greg Garner, 301-733-9465; Dave Walker, 301-766-7300; Joan Bowers, 240-420-8514; and John R. Pullaro, 301-824-7726.