Russia’s saber rattling and subsequent invasion of Ukraine certainly didn’t sit well with the global financial markets. Lots of panic selling and uncertainty this past month have added to an already very rocky start for the first two months of this year. Although we can chalk this up to panic selling, market uncertainty, the election year, or even irrational behavior over this particular situation, it’s still unsettling. It’s also a great reminder that we should stay the course with our long-term plans and our investments. In fact, now is a great time to recommit to those plans. Think of your planning as a visioning exercise for a brighter tomorrow.
Having a financial plan and sticking to it may be the last thing on your mind right now. After all, what’s happening between Russia and Ukraine is heartbreaking and appalling. There are a lot of unanswered questions in the early stages of this conflict. Will a new Iron Curtain go up? If so, how porous will it ultimately be? How long will the conflict last? How severely will economic sanctions and companies leaving Russia impact not only us, but the world? We simply don’t know yet.
We do know we can look to history for other global shocks to our society and financial systems and see what happened. Recent history is a great indicator. Think back to March 2020 and the outset of the pandemic. The markets had a meltdown in March 2020, but mostly recovered by July 2020. The following year, 2021, the DJIA alone returned a healthy 18.7%. The S&P 500 clocked a whopping 26.89%. Take a look at this graphic provided by Vanguard which shows other major geopolitical shocks that hit us hard and subsequent returns.
See Vanguard.com for more information. Credit, Vanguard.com.
What can you do? First, don’t make a rash decision based on media hype. Wild headlines sell stories and give talking heads something to blab about in our 24/7 news cycle. There may be a war in Ukraine, but there’s also a war for your eyeballs and clicks here in our country.
Second, do nothing! That’s right, do nothing. If you have a solid financial plan in place and have been keeping an eye on your asset allocation, you likely need to do nothing. You and your financial planner should be monitoring your plan and asset allocation on an on-going basis.
Third, check with your financial planner and see if the market downturn is a good time to buy. Chances are it is. A market correction or deep sell-off can be a good time to add to your portfolio.
Finally, if you are approaching retirement, you and your financial planner should have already planned your drawdown strategy several years before your retirement. You want to make sure you have appropriate, accessible cash holdings, fixed-income, and equities that match your retirement goal.
Keep in mind that time and volatility work to your advantage when it comes to long-term financial planning and investing, so stay the course! This downturn may be a great time to add to your holdings, not sell. It’s having the faith and tenacity to do it. Consider upping your 401(k) contribution, putting more money into your IRA, or adding to other investments you hold. Your adviser can hold your hand and walk you through these market changes and be a sounding board for your concerns. A good financial planner will also remind you of your goals and timeline and why the day-to-day gyrations of the market shouldn’t affect your long-term plan.
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