There is no doubt that a Russian invasion of Ukraine would have spooked global financial markets and oil prices.
This is evident in how the global stock markets fell on Thursday (24 February) while oil prices rocketed. On Friday (25 February), the markets recovered. This may well be an ongoing pattern, and market volatility is set to remain. In such uncertain times, nobody can predict anything for sure, and ultimately everything depends upon the actions and counteractions of the global leaders involved directly and indirectly.
However, the reality is that the accompanying turbulence in the capital markets is nothing new (even though the seriousness of this situation should not be underplayed). The following chart visually illustrates the past ten decades of bull (positive) and bear (negative) markets:
This covers a time filled with wars, financial crises, terrorist attacks and a global health pandemic, all of which caused significant market disruptions that led to economic bear markets. It is impossible to predict the next bear market or its severity with precision. Still, one can be confident that there will be a bull market where the capital markets around the world resume their permanent advance after every bear market.
With the above said, it is understandable why some clients/investors can go into panic every time they hear fear-filled words like “market-crash,” “sell-off,” and “stocks tumbling”. I, too, would be much more comfortable if the media would instead start using words like a “temporary market decline” or a “marginal decrease in asset prices.”
However, irrespective of the fear and negative sentiment prevailing in the public markets, this is not a good time to change your investment strategy or try to time the markets in any way.
Fleeing the market in times of a downturn could result in you missing out on some significant gains when the markets recover. This can have a considerable impact on your long-term performance. An analysis by JP Morgan concluded that if you were not invested in the market for just 10 of the 7,301 days between 4 January 1999 and 31 December 2018, your annualised return went from 5.62% per year to 2.01% per year. To sketch an even more frightening scenario, if you missed the best 60 days of market performance, you would have realised a negative return of 7.4% on your investment.
What is even more eye-opening to JP Morgan’s study is that six of the best performing days in the market occurred within two weeks of the worst days. A small example of this is that markets fell by between 3-4% on Thursday (24 February), and if we had sold to cash immediately, the upturn of 3-4% on Friday (25 February) would have been missed.
Therefore, we strongly emphasise not to try and time the market. Given the above evidence, our advice would be to have confidence in the well-diversified portfolio you are invested in. Trust the evidence of the markets’ reactions, resist a sell-off, diversify your risks and focus on the long-term.
Or, in more simple terms, remain invested in your portfolio, try not to panic, and know that we are here to help and answer any questions you may have.