Times of uncertainty may cause a tinge of worry when it comes to your long-term financial goals. Market volatility caused by global instability can increase the desire to run and pull money out of the market.

But most need to be reminded that market reactions to war generally don’t cause damage over the long term. In fact, the market, for the most part, seems to rebound quickly from the impact of war. From 1926 until 2013, you’ll see that market volatility was actually lower during periods of war. For example, the Dow Jones Industrial Average climbed more than 7% per year during World War II.¹

While plan participants should focus on “staying the course” during times of uncertainty, it is also important for them to review their investment strategies.  They should ask themselves “What is my risk tolerance? When will I retire? When will I need this money?” to ensure they are on the most appropriate path. A new course of action is only warranted if it is more appropriate than the current path. Evaluating one’s situation—having the most appropriate asset allocation and high enough contribution rates—can lead to a participant’s most positive actions in saving for retirement. Bailing out of the markets and a retirement plan is typically an imprudent action, often detrimental to reaching future long-term retirement goals. Data indicates that individuals attempting to time the market generally proves futile. Current market conditions rarely provide a clear direction as to the future performance of the markets.

The U.S. market has shown to be dynamic and resilient in moving on from crisis after crisis throughout history (see image below). The recent market volatility should remind plan participants to focus on what they should be doing on a regular basis: Be mindful of the situation but diligent about your investment strategy. Participants need to act in their own best interests while the stock market reacts to the current situation in the Ukraine and the uncertainty it brings: another bout of expected short-term market volatility.

There will be times when your nerves get the best of you, so try to remember that the stock market’s worst days are usually followed by its best days.² While you may feel like you can “control the markets” by selling, you’re actually just locking in the losses when you do so. Even when things look bleak, staying the course is always the savvy investor’s best course of action.

Remember, staying invested in times of market turbulence will help you participate fully in potential market gains. While there is never any certainty in the market, it is worth noting that some of the sharpest market declines were followed by steep rebounds. History has taught us that volatility is to be expected. The implications surrounding the current turmoil should call on plan participants to focus on what they should otherwise be doing on a regular basis.

For more information on staying the course and keeping your retirement on track, contact your plan advisor.

 

¹ Investopedia. “How War Affects the Modern Stock Market” (January 2022)

² J.P. Morgan Asset Management, “Principles for successful long-term investing.” (2022)