This Too Shall Pass – The Cost of Being Out of The Market
The situation in Ukraine is horrific from any perspective on a humanitarian level. Having studied political science and international relations at Tufts University as well as The London School of Economics – and having spent a considerable amount of time in Eastern Europe including doing business in the Soviet Union during the time of glasnost and perestroika in the late 1980s and early 1990s - I certainly share what much of the world feels about this senseless war and tragedy unfolding before our eyes. While difficult to do, when assessing near and long-term finances, you have to be able to compartmentalize and look at investing from a highly rational, disciplined perspective. When you examine the facts, historical conflicts have tended to have a short-lived impact on US stocks and created opportunities for those who act (when it comes to their hard-earned money) based on facts, not emotions.
In terms of the current military conflict as a source for global tension and stock market price declines, if you look back at history, stock market recoveries from such events tends to be rapid, with the average time to recovery being under 50 days. The range of time to recovery from 20+ major conflicts from 1941 to present have been anywhere from 2 days to the longest (by far) of 307 days being the direct attack on the US (Pearl Harbor). While no one knows if the recent market lows will be the end of the near-term market volatility, US stocks having rallied strong last week, what we do know from decades of stock market history is that if you attempt to time the market and miss just a few of the best days in a year, your results can suffer materially. If you missed just 10 of the best days from 1999 to 2018, your gains were cut by more than half. If you missed the 20 best days over that 20-year period (as in if you missed on average just 1 best day per year), then your returns went from being strong to negative. The point is, being out of the market as it recovers can be very damaging to your financial future.
Thankfully, the current conflict shall pass, like all world challenges before it – be they economic, political, health, or otherwise. Those who have a financial plan and stick to it with patience and discipline will likely prosper. Those who succumb to the adage that the stock market is a mechanism for transferring wealth from the impatient to the patient, will invariably experience those financial effects accordingly. Remember, the job of a great Financial Advisor is not to try to attempt the impossible and predict short-term market swings and dart in and out at exactly the right time (in fact part of a well-trained Financial Advisor’s job is to keep their clients from attempting to time the market). Their job is to create and implement a financial plan that can withstand any and all events the world throws at the companies they invest in on behalf of the client (including allocating cash / short-term bonds to cover any near-term cash needs). It is during challenging times that professionals in any field tend to show and earn their worth, not when conditions are perfect, and everyone looks like a star.
Article by Scott Kyle