War….What is it good for?
Not markets or anybody who constantly looks at their investment values’ blood pressure that is for sure.
As the tragedy of Russian foot soldiers beginning their march to Kiev unfolds, markets have gone in to Corporal Jones ‘don’t panic’ mode and reacted as they always do when events like this occur, with equities falling and gold going up.
The latter is a bit of a blow to the Crypto evangelists who have been saying that in our ‘new’ world in times of stress people would turn to their ‘virtual’ wallets and buy more ‘virtual’ currency. As I write, Bitcoin is down 10% on the day, so it appears ‘virtually’ nobody is doing this. Instead it looks as though the old fashioned shiny stuff that you can actually touch remains the first port of call when fear strikes.
So although they say history does not repeat itself, in the case of market reaction to major geopolitical conflict there is a hell of a lot of plagiarism that goes on.
Let’s go back to the Gulf War in 1991. The Dow Jones index fell by 17.6% in the two months after the war started in August that year. By May the following year it was back at its pre-war level.
The terrorist attack on the World Trade Centre caused a fall of 14.2% over the two weeks after the attack. Two months later it had recovered all of the losses suffered.
Even with the biggest of them all, World War II, the Dow fell by 16.5% in the five months after the attack on Pearl Harbour but had recovered those losses within 11 months of the first Japanese bomb being dropped.
Now of course this time may be different but I suspect not. As the above shows it is impossible to predict when the low point will be after the start of a conflict and of course it is as impossible to know how long it will be before any falls will be recovered. But recover they will and this is the most important thing to keep to the forefront of your mind.
This is one of the reasons we always ask how much cash you have outside of your investments as this gives you the option of using this for any expenditure you may have rather than being forced to take money out of your investments at what may be a bad time.
It is also why we build a diverse spread of funds within your plans to try and ensure they do not all perform in the same way at the same time.
We are well aware no one likes to see falls in their values but nothing only goes up, as Bernie Madoff’s investors eventually found out, and experiencing times such as this is the trade-off that has to be made to achieve long term capital appreciation.
So try and avoid getting carried away by the fear that the media will undoubtedly stoke up in the coming weeks and months and please let the conflict be over as quickly as possible for the poor people of the Ukraine.