If you are worried about what the Russian invasion will mean for your pension and investments it’s important to keep significant global events within the context of time. The chart below (click to enlarge) shows the annual returns of the S&P 500 since 1926 with the major global wars imposed on top.
There are three important things to note:
- The down bars (the negative years) are less frequent than the positive year. Mostly they are single years in isolation.
- When there have been down years, they are very quickly followed up years.
- The outbreak of war can have short-term negative consequences for stock markets but history shows it tends not to be for the duration of the conflict.
This second chart (also click to enlarge) shows the cumulative return of $100 invested in the S&P since 1926 with the trend line (red line). The index continues its upward trend despite the occurrence of wars, pandemics, banking crises and whatever negative events the human race are affected by or cause.
Stock markets fall like lifts but rise like escalators, i.e. they go down sharply but up gradually. This is certainly reflected in the above chart. The important thing is not to jump out of the lift when it is falling, but to ride the escalator all the way to the top.
If you are interested in understanding how markets react to bad news have a watch of this video.
Photo by Jaunt and Joy on Unsplash
