How to Handle Your Investments During Wartime

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My teenage daughter has been understandably concerned about what’s going on in Ukraine and what it means for the rest of the world.

Although Russian President Vladimir Putin is becoming increasingly unhinged, I’d like to believe he’s retained enough of his marbles to still understand that no one wins a nuclear war.

My daughter expressed that the world seems more perilous than ever before. I reminded her that when I was little, we used to sit under desks at school during atom bomb drills. During the Cuban missile crisis, the world was on the verge of nuclear war. And during her grandparents’ lifetimes, millions of lives were lost to genocide and war.

Not to discount the current situation or her fears, but the world has always been a volatile place filled with individuals who are gluttonous for gold, oil and power over others.

When it comes to financial markets, sure, they shimmer and shake when a saber gets rattled or swung.

But it’s never paid to bail out of investments because of violence in the world.

Let’s look at market performance after major sources of conflict.

  • The Nazis invaded France in 1940. The market fell nearly 19% over the next year. However, the market had been declining steadily since 1937.
  • The market was down 11% three months after Pearl Harbor was attacked on December 7, 1941, but up more than 4% by December 1942.
  • Stocks were actually up for several months after 9/11, though they were down 18% after one year. Keep in mind, the dot-com collapse and recession were already underway on 9/11.
  • The U.S. invaded Iraq in 2003. A year later, the market was up 27%. But again, context is important. We were in the early stages of the bull market and economic recovery.
  • When Russia annexed Crimea in 2014, stocks climbed 15% over the next year. The economy wasn’t particularly strong, but stocks were, as we were in the middle of a 10-year bull run.

So you see that it’s more important to acknowledge the performance of the economy and general market than to get caught up in what geopolitical tensions may mean. Those tensions usually don’t matter much as far as stocks are concerned.

What should you do if the Russia-Ukraine war has you spooked?

First, assess when you need the money you’ve invested in the market. If you need it in the next couple of years, then go ahead and sell. It’s not that I necessarily think we’re headed for lower prices, but you can’t afford the risk that it does go lower.

I’d say the same thing if there were peace on earth and the market were roaring.

In fact, I did the same thing myself just a few months ago. My daughter is going to college next year, so I significantly reduced my exposure to stocks in her 529 college savings account. That money we’ve tirelessly saved and invested for nearly two decades needs to be there when the tuition bill comes due. I’m not willing to expose it to market risk at this point.

If you don’t need the cash in the next few years and are invested for the long term, then from a financial standpoint, don’t worry about what’s going on in Ukraine or the rest of the world. Markets go up over the long term, and you should be fine.

If markets do tank, it really doesn’t matter because you’re not planning on selling anytime soon. In fact, you can pick up stocks at better prices if they do.

I especially recommend buying dividend stocks when markets slide because you get a higher yield on your money than you could have had just a few weeks or months earlier.

It’s stressful seeing terrible images and videos on your TV or online of Ukraine (and other embattled areas of the world). You have every right to be concerned, angry, sad, etc. But don’t let those emotions ruin a well-thought-out investment plan – especially when there’s no evidence that these geopolitical events have substantial effects on the markets.

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