How does WAR affect the stock market?

Stocks during war

I’d like to start by saying that by posting this I don’t mean to mitigate the crisis going on in Ukraine today. The toll that war takes in lives and destruction dwarfs the concerns about impacting our 401ks. A better analysis in the war in Ukraine is beyond my area of expertise, but I hope and wish for a swift and peaceful end to the conflict.

That said, I’ve been naturally hearing a lot of concern about what this means for the stock market. So I’ll try to hit some FAQs:

• Is the market going to crash? I don’t know.
• Should I pull out my money and stop investing? Absolutely not.
• What should you I then? The same thing you have been doing. Live below your means. Invest early and often. Buy and hold index funds. Don’t sell anything until you retire. Never try to time the market.

What happens the next 10 years won’t be the same as any of the previous wars in this example. That’s kinda how life works. We don’t know what the future will hold. But if you use the past as any guide, the 10 years following the outbreak of US involved wars over the last century have resulted in good to great stock market returns. However, in five of the six wars in this chart, the market DID go down at some point. In the worst case, after World War II broke out, the market eventually dropped 28% from it’s beginning. Does that mean the market will drop this time? Nope. In the Iraq War, the market went straight up, never falling below the level it was at from the onset.

If the market drops 10%, will it keep dropping to 20%? Nobody knows! But we do know over long periods of time the market goes up. Any move you make in reaction to news is much more likely to hurt you than help you. Conveniently, doing nothing is also the least stressful path. You don’t have to guess about when to get in and out and the risk of locking in even worse losses.

Hold your shares. Stick to your plan. Keep buying more as scheduled. Stay the course.

As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.

-Jeremy

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