Market Corrections and Subsequent Reactions
Russia has invaded Ukraine and investors are bracing for more volatility.
While past performance is no guarantee of future results, we can review what has happened to stocks after what might be termed a “market shock event.”
Reviewing 22 such geopolitical events since WWII, the average drawdown for the S&P 500 Index1 has been 4.6%, according to LPL Research.
- The biggest decline occurred after Pearl Harbor, with the index losing nearly 20% over 143 days, but shares managed to recover about one year after the attack.
The biggest factor affecting stocks longer term is whether the U.S. slips into a recession. Today, odds are low.
Investor’s corner—managing volatility
Avoid timing the market. It’s nearly impossible. Time in the market vs timing the market has historically built wealth.
Instead, establish a well-diversified, holistic financial plan. A diversified plan that takes your risk tolerance into account won’t eliminate the downside, but it helps manage risk and allows for upside appreciation when stocks are rising.
Rebalance over set intervals. Over time, some asset classes will outperform. Sell some of those positions and place them into the underperforming asset classes (rebalancing). This prevents you from becoming too “top heavy” in certain asset classes, which may increase overall portfolio risk.
If you have a holistic financial plan, you have chosen the narrow path. You have a roadmap to your long-term financial goals.