It is likely that you will experience one or more major world events at some point in your life, such as pandemics or political conflicts. Such events can significantly alter the lives of people across the globe and the environment we live in. Financial security is among the many concerns people often face during these circumstances. However, it’s important to note that contrary to popular belief, such events often have a limited near-term impact on financial markets. When navigating your financial uncertainty during times of political tension, it can be helpful to understand how these events have historically unfolded.
Geopolitical Fear Can Be a Buying Opportunity
While geopolitical turmoil can have many lasting and often tragic effects, a recent Reuters article shed light on the fact that the near-term investment damage is often insignificant or non-existent. The report highlighted 29 significant geopolitical events dating back to World War II and discovered that over 1-month, 6-month, and 1-year timeframes following the events, returns on the S&P 500 were positive 66%, 69%, and 83% of the time, respectively. Understanding these patterns can provide some sense of peace in difficult times. Additionally, the trend in positive returns and limited investment volatility can create a strong potential buying opportunity.
Develop/Review/Stay Committed to Your Plan
Developing and committing to clear and well-defined financial goals can help in creating a sound financial plan. Your goals can help you create a well-balanced portfolio to navigate through all types of markets. When building your investment portfolio, it can be helpful to balance short-term liquidity/cash needs while striving to grow your assets at a rate that exceeds inflation with stocks, Real Estate, alternative assets, etc.
Once you establish your plan and goals, it is crucial to stay committed to them. Making drastic changes during volatile periods in the market can potentially lead to unnecessary capital destruction. Understanding what you own and why can also help you anticipate how your assets will behave in different market environments.
By being aware of historical market responses and using clear goals and planning to drive portfolio construction, you may be better positioned to navigate the psychological ups and downs associated with heightened geopolitical turmoil.
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Marshall Clay CFP, J.D., is a Partner and Senior Advisor at The Welch Group, LLC, specializing in providing Fee-Only investment management and financial advice to families throughout the United States. Marshall is a graduate of the United States Military Academy in West Point, New York, the Cumberland School of Law in Birmingham, Alabama, and is a CERTIFIED FINANCIAL PLANNER™. In addition, Marshall is a frequent guest on local television stations as an expert on various financial planning matters.
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