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The war in Ukraine has introduced new uncertainty to a stock market that’s already had a shaky start to the year. The S&P 500 saw its most drastic one-day drop since May 2020, amid a war with no end in sight and mounting sanctions on the part of the U.S. and its European allies.
With hundreds of civilians dead, including children, and more than half a million refugees having fled Ukraine, the most important consequence is clearly the human cost, rather than anything having to do with people’s investments. As the war continues, so does the unpredictability of the consequences beyond the borders of Ukraine.
After the invasion last month, the S&P 500 index logged its first correction in nearly two years, meaning it dropped more than 10% from its recent peak — and even though there was uncertainty about what was going to happen next, the U.S. stock market bounced back quickly. Several experts told TIME this week that while the human costs of this war are capturing attention across the globe, the financial implications are a bit more complicated. For now at least, the experts say the strength of the response by NATO and European nations has stalled concerns that Russia’s attack on Ukraine had potential to send global markets into a free fall, the experts say.
When the market starts to tank, investors might be tempted to overreact and sell their investments, but experts advise against that. “Don’t pull your money out. Don’t stop investing. Any reaction you have to the situation is more likely to hurt you than help you,” says Jeremy Schneider, personal finance expert at Personal Finance Club. The rebound of the stock market shows that volatility in investing is par for the course, and investors should not panic.
Of course, the loss of lives and the destruction of war is always more important than what happens to our investments. May there be a quick and peaceful resolution to this conflict.
But we’ll talk about what you should do as this situation develops.
The overall market has recently been reactive to inflation at a 40-year high, rising interest rates, the ongoing pandemic, and now, the devastating situation in Ukraine.
This situation is “an example of how you can’t be reactive to news in investing. If you woke up [on Thursday] and sold your investments because of the war, you would actually have lost to the market,” says Schneider.
It’s human instinct to react, and we are seeing that play out in the stock market right now. Remember, the market has more than doubled since the beginning of the COVID-19 pandemic when we saw the market drop over 30% in March 2020.
Is the Market Going To Crash?
“I’ll tell you exactly whether it’s going to crash and the answer is — I don’t know,” Schneider says.
Probably not, at least historically speaking. But it’s typical to see wars affect the market, Schneider explains.
For the last six U.S.-involved wars, the stock market rose in the 10 years following the breakout of war. “The worst was during World War II when the market only doubled” in the 10-year period following the initial breakout in 1939. “And the best was during the Gulf War where it was up almost 500%,” from 1990 through 2000.
If the entire stock market were to crash, that would mean that no publicly-traded companies in the country made a profit. And if that happens, the scenario would be more dire for humanity than just a loss of money.
We can’t predict if the market is going to crash because it’s already based on all publicly available knowledge.
It’s going to do what it’s going to do, and that’s likely up as it’s always done.
Pro Tip
If your investing horizon is long, the best thing you can do during times of crisis is to hold tight and keep investing as usual. The stock market has historically always bounced back, and you’ll be rewarded for keeping your reactions in check.
Should Investors Change Their Strategy or Pull Out Money?
If your investing horizon is long, the best thing you can do during times of crisis is to hold tight and keep investing as usual. The stock market has historically always bounced back, and you’ll be rewarded for keeping your reactions in check.
“This is what investors should change based on the Russia-Ukraine situation,” advises Schneider. “Absolutely nothing.”
You should stay the course, stick to your plan, and continue to buy and hold index funds, he says. Plan to hold your investments for decades, don’t try to time the market, and don’t sell any of them until you retire.
That said, volatility in the stock market is a reminder of why it matters to have a solid emergency fund in cash before you invest. That way, you have safe and secure money you can access at any time, even if your investments are swinging up and down in value.
So stick to your overall financial plans, such as building your savings, paying down debt, and investing. The best thing to do right now is to keep your routines going and continuing to invest at regular intervals.
“Invest early and often,” says Schneider.
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