Market Insights: The ‘Tao’ of Investing in Wartime

With news of Russia's conflict in Ukraine, you might be worried about the effect on your investments. Here is our investment team's perspective. 
25 February 2022
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With news of Russia’s conflict in Ukraine, you might be worried about the effect on your investments. Here is our investment team’s perspective. 

Since its peak, global markets have come down by more than 10% as various worries beset the market, the latest being the situation in Ukraine. Our core Dimensional equity portfolio has come down somewhat less, by about 8%. Yesterday’s market movement as Russia launched its full-scale attack on Ukraine showed us again that it is quite impossible to predict short-term market movements based on headlines. Stocks were sold down and oil was up at the beginning of the trading day – after all, the war and sanctions involve a major energy supplier. However, there were sharp reversals in the later part of the day and equities ended positive. Everything from expectations of slower monetary tightening, oil reserves release and even better valuations have been cited as reasons.

Indeed, as we know from decades of price movement as well as the Nobel prize-winning research behind our selected funds, liquid markets are efficient. Prices move very quickly and usually ahead of time to incorporate a whole host of news, data and expectations — be they geopolitical, economic or valuation related. It is futile to chase prices and to move in and out or adjust asset class allocations.

As explained in our recent article, when you understand markets, you can view this drop with anticipation of opportunity to boost your long term return and not fear. Based on past market performance around geopolitical/military events from 1941 to 2003, it is more common for the stock market to be positive just 12 months after a major military event, rather than to stay negative. Stock markets tend to go up most of the time and do go up over time.

Is it time to top up your investments? You can consider to invest some of your spare cash, and dollar cost average if markets go down further. But there are three important provisos: One, you are investing into your recommended portfolio. Two, your adviser had done his or her job well in putting you in the right portfolio in the first place. Three, your portfolio is properly constructed of market-based, non-forecasting funds and/or your adviser (robo or human) is not actively buying ETFs to try to catch the right asset class or sector movements. Otherwise, no matter how disciplined you are, your work will be nullified by those making your investments.

Disclaimer: While every reasonable care is taken to ensure the accuracy of information provided, no responsibility can be accepted for any loss or inconvenience caused by any error or omission. The information and opinions expressed herein are made in good faith and are based on sources believed to be reliable but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness. Expressions of opinions or estimates should neither be relied upon nor used in any way as indication of the future performance of any financial products, as prices of assets and currencies may go down as well as up and past performance should not be taken as indication of future performance. The author and publisher shall have no liability for any loss or expense whatsoever relating to investment decisions made by the reader.

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