“…In this world, nothing can be said to be certain, except death and taxes.” – Benjamin Franklin
Franklin’s words ring true, especially now in the current state of rising geopolitical uncertainty: Brexit, rising protectionist sentiment, political elections in the U.S., France, and Germany, missile strikes in Syria, North Korea’s sabre rattling, etc. There is enough uncertainty in the world to shake even the most confident faith. In fact, a February 2017 survey by the CFA Institute found that two-thirds of investors surveyed think that the current geopolitical events will negatively affect investment returns over the next 3-5 years, and 70% of respondents feel these events will impact market performance.
What history has shown us is that markets react to the “crisis of the moment.” We don’t know how long these events will last – it could be one to six days or one to six months or longer. What we do know is that reacting to these crises du jour, by trying to change your investment strategy to protect yourself from the market’s fluctuations, more likely than not, will harm you in the long run.
Let’s review what history can teach us [these summaries are from Ben Carlson’s April 2017 article, “How Markets Overcame Past Geopolitical Crises” in BloombergView]:
From the start of WWI until it ended, 1914-1918, the Dow Jones Industrial Average was up more than 43%, 8.7% annualized.
Five days after Hitler invaded Poland and WWII began, the Dow rose almost 10% in a single day.
It only took one month after the attack on Pearl Harbor for the market to regain its losses of 2.9%.
From the start of the Korean War until it ended, 1950-1953, the Dow was up 60%, 16% annualized.
When the world was on the brink of nuclear disaster during the two weeks of the Cuban Missile Crisis, the market lost only 1.2% and gained more than 10% for the remainder of the year.
The market opened up 4.5% the day after President Kennedy’s assassination and the year 1964 ended up more than 15%.
Already in the middle of the tech bubble burst, stocks fell 15% in the two weeks following the attacks on September 11, 2001, but the market regained all its losses within a couple of months.
And who could forget the most recent crisis when the Dow futures fell 900 points that fateful Tuesday night in November 2016 only to soar 257 points the following day.
Over the long term, fundamentals still drive the stock market. When seeking certainty in an uncertain world, stay the course – keep steadfast to your goals and your financial plan.
Life’s a journey – navigate it wisely!