When we already thought that calm times would come and a slightly clearer scenario was beginning to be seen after the pandemic, suddenly the invasion of Russia in Ukraine occurs and of course the first thing that comes to mind for many investors is the word “panic” about your investments.
In this article we will review what has happened in situations of previous armed conflicts and how the stock market has behaved.
Before starting, it would be important to remember the famous phrase of Sir. John Templeton (British-American investor), who said “The four most dangerous words in the investment world are: This time it’s different”
Many of us tend to think that the moment we are currently living is unique and that the results will be totally different from those that have been experienced in the past; Since Putin was not there before, financial sanctions against Russia had not been created as they have been done now, and we did not have a country with nuclear weapons trying to take over Ukraine, causing the value of oil to grow to all-time highs and with them the price of gasoline rising and pushing inflation.
All this is true, but particularly the stock markets see it a little differently:
Historical evidence shows that in most cases the stock markets recover relatively quickly from this process, this is not like a pandemic where the stock market had not experienced that situation in the last 100 years and there was no idea of how they would react, because it was something new.
Let’s look at the following cases with data collected from Investopedia and LPP Financial:
As we see all these historical events have the same pattern in common, the stock markets have shown a continuous tendency to recover and leave these conflicts behind.
In the investment world, investors are constantly trying to predict what is going to happen and not what has already happened. They work like those instruments that try to predict the arrival of a hurricane or a storm before it arrives, which may end up happening or the storm may not arrive.
In particular, this invasion of Russia with Ukraine happened in this way, while Putin told the world that he had no intention of invading and all the news showed us that every day he was accumulating more and more troops on the border with Ukraine, the bag stocks, on the other hand, had been falling sharply saying I don’t believe Putin and that began to affect share prices, despite the fact that nothing had happened yet.
In the same way, it has happened in history, which shows us that, in periods of greatest conflict or pressure, suddenly the shares begin to rise because the market begins to feel that a solution may eventually come, and they then seek to buy shares at Low prices to wait for the rise.
So many times you get up and watch the news first thing in the morning and perhaps you get stressed thinking that you must do something before this news affects your investments and the reality is that the stocks have already reflected their price in the market this information and it’s rather late, but your financial brain is going to play tricks on you by making you believe that you still have time to do something.
So, as we can see, the real challenge right now is to control the stress war that exists in your financial brain, for which we are going to help you identify those points where you should do something, thus improving your behavior as an investor:
This is one of the most common mistakes that investors make, they say there is a war, this is going to get worse, things are not going to get better and they let the short-term vision rule over their money when we all know that in the stock market you should not invest the money you need for the short term, and if you don’t need it for today, what does it matter if the balance of your portfolio goes down if, historically, investments come out victorious in wars?
The great reality is that in any war or invasion there will always be losses along the way, and as we have seen, it is practically impossible to determine or predict which sectors, companies or actions will truly be favored since they depend on many factors. Some would say that in a war conflict, arms companies are favored, but what you don’t know is what happens if something changes tomorrow, and the invasion abruptly stops.
So, the suggestion in moments of high uncertainty is precisely to have a little of everything, to diversify and not be trying to hit the winning horse or in this case the winning action.
You should always have money that you do not invest in the stock market, which we can call an emergency fund and it is precisely the one that will help you when situations like these occur and you do not have to use the money that you have invested in times of crisis. short.
So remember that the money you invest in the stock market must stay there for at least 3 years.
One of the functions for which investors hire an investment advisor to manage their portfolio for them is that there are two factors that are extremely complex:
To do this, investment advisors establish a recipe for the portfolios which will represent the path that we will follow as if it were a pastry recipe where we say your portfolio must have, for example, a stock rate and a teaspoon of market bonds emerging, and when asset prices change over time, the advisor must return their initial values, buying the one that fell and selling the one that rose.
We know that the world’s newscasts do not generate their audiences by posting beautiful information or of people who have been achieving their goals, but rather they mainly live on that horrible news that we all like to hear and are the ones that go viral.
Well, in the same way it happens with your investments, normally the advisors currently say in this opportunity it is not good to be continually consulting the balance of your portfolio, and what is the first thing that clients do? They run out to check their balance.
But they do not realize that what they do is stress themselves and when people are in a state of fear, they do not make the best financial decisions. So, we tell you again, do not check the balance at this time and let the storm pass.
But they do not realize that what they do is stress themselves and when people are in a state of fear, they do not make the best financial decisions. So, we tell you again, do not check the balance at this time and let the storm pass.
In conclusion, we can point out that the sentence of Sir. John Templeton is still more relevant than ever, do not think that this moment is different, follow these recommendations and we always suggest supporting you with a Certified Financial Planner (CERTIFIED FINANCIAL PLANNER™) that will help you create a long-term plan for your financial goals, remembering that on the way there will be turbulence, but also the sun rises again.
Note: Historical returns are not a guarantee of future results. Information for educational purposes only, not representing financial advice or any promotion of a financial product. Always consult your case with your advisor or financial planner.
Founder & CEO Advise Financial
Alonso is a “CERTIFIED FINANCIAL PLANNER™” who is dedicated to increasing the Financial Well-being of nurses, physicians and successful immigrants in Florida and Texas. With more than 20 years of experience in the world of finance, always working for the best interest of his clients, under fiduciary criteria.
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