As everyone is aware, a new geopolitical conflict occurred
with the US and Israel coordinating strikes against Iran. Iran retaliated
launching a series of missiles at Israel, US, and many neighboring countries.
War creates many issues and emotions. For this article I’ll
focus on the long-term impacts to financial markets. Below I have attached a
chart showing US stock market (S&P 500) performance following global
conflicts.
Source: Ken French Data Library
History shows most geopolitical conflicts may cause some short-term
volatility but have not had a long-term impact. However, war is not necessarily
a positive catalyst financial markets either.
In each of these conflicts, economic factors such as
inflation, unemployment, interest rates, corporate profits, etc. generally had
a greater bearing on the financial markets. The long-term investor was rewarded
for their discipline and ability to stay focused on their financial goals.
This time could certainly be different. That’s why the first
step we take is to make certain you are taking the appropriate amount of risk.
For example, people who need money in the shorter term have a higher allocation
to bonds.
The next step is to make certain you are broadly
diversified. On the equity side, we use small and large company funds,
including international holdings. On the fixed income side, we maintain a
healthy cushion in bonds and cash in case the financial markets decline. Bonds
continually serve as the ballast in your investment portfolio.
It is important to remember that upheavals always occur. Volatility
is not new. We all want the world to go back to “normal” but, in reality, there
is no normal. The smartest move is to stay resilient and focus on what you can
control. Sticking to your asset allocation is most important. On our side, in
addition to managing your risk appropriately, we keep your portfolio costs low
and tax efficient.
The best way to deal with the crazy world is to live every
day fully, enjoy the people you love, be a good steward in your community, and
focus on what you can control. We are here. Let us know your questions and how
we can help.