The global stock market is like a pendulum: always swinging between periods of fear and periods of greed. Since the beginning of this year, we've been in a period of fear: fear of rising interest rates, fear of inflation, and fear of stock market volatility. The uncertainty surrounding the conflict between Ukraine and Russia is making things worse.
So what is an investor supposed to do? Stay calm, focus on the long term, and stay diversified.
We found this chart to be very helpful in creating historical context. Dating back to 1941, this chart shares the effects of geopolitical events on the S&P 500. On average it takes about 20 days for the markets to find a bottom and 43 days to recover, with a total drawdown of -4.6%. Every geopolitical event is different and will cause different levels of concern. However, the effect on your portfolio tends to be short-term.
The chart below reflects the historical return of the S&P 500 dating all the way back to 1926. The periods in green, which are bull markets, far outnumber the periods of loss (both in length and magnitude). This provides the perspective that there is much more upside over the course of time than there is downside.
So what are we going to do? Follow the same advice as noted above...stay calm, focus on the long term, and stay diversified.