Many of us are glued to the headlines that are being released regarding the Russian invasion on Ukraine, which started on Thursday, February 24. The world has seen many battles, wars, and occupations but this invasion seems to hit us all closer to home. The democratic views of our western world are being tested against Putin and his oligarchy. This is something that plays into every single person’s humility and emotions, but now is not the time to let those emotions creep into making investment decisions.

The S&P500 officially crossed and closed in correction territory on Wednesday, February 23. A correction is defined as a 10% decline from the last high, which was on January 3. Corrections are completely normal in the stock market and occur on average of about every year or two. Bear in mind that we haven’t had a correction since March 2020 so you could say that we were due. In the short-term, no one knows if the market will recover from here or continue its decline into bear market territory, which is defined as a 20% decline from the last high. The S&P500 experiences a bear market on average of around once every five years but the last two were 2018 and 2020 so by no means does the market follow the actual average.

The market has always and will always be smarter than us. The market saw the economic damage slowing from CoVid and started it’s ascent from the lows in March 2020, before the public could even visualize a back-to-normal scenario. As of now, the market hasn’t really been heavily affected from the Ukrainian crisis, as it was already negative in 2022 from the fear of inflation and higher interest rates. The longer the invasion of Ukraine goes on then the higher chance that it will slow global growth but Russia and Ukraine only make up about two percent of the global economy so, while it is unfathomable to think about on a human level, the invasion of Ukraine will not stop the world’s growth. We just had an event that drastically slowed global growth and it was CoVid, where everyone and everything was affected.

What the market doesn’t care about is how long you have to invest or how much you need to achieve your income goals. Your advisor can’t tell you when it is the most opportune time to invest or sell, because no one can, but they can use their expertise to advise you on investment decisions based on your near-term and longer-term goals. What I will say is that every daily market decline experienced means a lower probability that tomorrow’s result will also be negative. We all know that the market has gone up over time, albeit with periods of decline along the way. You just have to ensure that you have enough cash (or cash equivalents) set aside to get through those periods of decline. How much do you need? None, because you’ll use lending options? One year? Two years? There is no ‘right’ answer to this question except the amount that it takes for you to have piece of mind to get you through the periods of decline so that you aren’t going to emotionally sell and crystallize a non-recoverable loss on your investments.

The market has experienced conflict in the past and it will experience further conflict in the future. We can look back at past periods so that we have a better idea of what to expect in the future. I’ve put together a chart that shows the S&P500 returns (both nominal and real) during historical periods of conflict.

During all of the major conflicts shown above, the average inflation-adjusted S&P500 return has been 6.2% per year. This is very close to the long term annual inflation-adjusted S&P500 return from 1928 to 2021, which is 6.8%. While we may experience short-term volatility during any period of heightened uncertainty, the market has always been able to see past the uncertainty and I don’t see any reason to believe that it won’t see past this one too.

Stay-the-course and always let your goals dictate your investment decisions, not your emotions.

Here are some things that you can do if you are feeling uneasy about the current conditions:

i) Focus on What You Can Control : You can’t control the market but you can control your savings and spending rate.

ii) Help Where You Can : You may be able to donate your time, spare cash, or items to people in need.

iii) Watch Less News & Get Outside : It is proven that being outside relieves stress and it good for your mental health so take a break from screen time and head outdoors.

iv) Talk to Someone : It may be friends, family, an advisor, whomever. Reach out and have a chat.

v) Realize That Conflict is Normal History : It’s happened in the past and it’ll happen again in the future.

vi) Always Refer to Your Financial Plan : Your financial plan should have market corrections and bear markets embedded in the plan, meaning that you have planned for this. Let your plan show you that you are prepared.

vii) Do Nothing : Humans instinctively want to act. This instinct has helped us survive the span of our human existence but that same instinct will only reduce the probability of your investment portfolio achieving success.

Want to chat more? Reach out to me at info@financerx.ca.