We want to address the global stock market reactions to the unprovoked invasion of Ukraine by Russia. While most of us feared this was coming, we all hoped that diplomacy would prevail. There is a pending humanitarian crisis along with the potential for needless suffering and loss of life that Western nations will attempt to dissuade through unprecedented economic sanctions against Russia.
Beyond this human toll, the global stock market reaction has been predictably volatile. Domestically, both the stock and bond markets started this year with declines related to concerns about the federal reserve beginning to tighten monetary policy as well as high inflation. These conditions had been exacerbated in recent weeks by Russia's threatening stance and now have accelerated with the actual invasion of Ukraine. Pressure on equities may continue for a while, depending on the progression of the invasion and the effectiveness of sanctions.
As investors, our first line of defense against stock market volatility is seeking diversification. Working with our clients, taking into account their risk tolerance, we seek to build portfolios that are exposed to stocks, bonds, cash and alternatives with the aim of blunting the effect of stock market volatility.
While no one can predict the future, we provide you with a few charts (below) that help put this event into a historical perspective. And although past performance is not necessarily indicative of future returns, these graphs help illustrate that while Bear Markets have typically been short and painful, Bull Markets have tended to last longer and be more rewarding for investors who stayed the course through adversity.
Annual Returns and Intra-Year Declines
The chart below shows that many years in stock market history have seen sharp intra-year declines and still posted positive returns.
Bull & Bear Markets 12-31-21
The chart below helps put into perspective the past 79 years of stock market behavior through various market cycles and external shocks, which have been historically relatively short-lived.
S&P Index: Positive & Negative Years
The chart below also helps reiterate that over the past 96 years the majority of returns are positive.
We will continue to monitor the situation, look for investment opportunities and tax efficiencies and work with each and every client to maintain a portfolio consistent with their long-term investment objectives.
As always, should you have any questions, please do not hesitate to contact us.
Investment advisory services offered through GW & Wade, LLC.
The information provided above is the opinion of the author, general in nature and is not intended to represent specific investment or professional advice. No client or prospective client should assume that the above information serves as the receipt of, or a substitute for, personalized individual advice from GW & Wade, LLC, which can only be provided through a formal advisory relationship.
The figures shown above represent historical results. Past market performance is not a guarantee of future results. The investment products mentioned in the above article may not be suitable for all investors. All investments carry the risk of loss, including the risk of loss of principal invested. Some alternative investments strategies are private investments, which have limited liquidity. Diversification and asset allocation do not ensure a profit or guarantee against loss.
The charts are for illustrative purposes and are not indicative of any actual investment. Investments cannot be made directly in an index. The index returns represented in the article above are provided gross of fees. Advisory fees, compounded over a period of years, will reduce the total value of a client’s portfolio. For most clients, GW & Wade assesses advisory fees on a quarterly basis in arrears and deducts the fees directly from a client’s account. To the extent that such fees are deducted on a quarterly basis, the compounding effect will increase the impact of such fees by an amount related to the account’s performance. For example, accounts with a 1% annualized fee that is deducted quarterly and a 10% gross annual return, generally will have a net annual return of 9%. If those same accounts experience 10% gross annual return over five consecutive years, the compound growth would result in a cumulative five-year return of 61.05% but after accounting for the 1% annual fee, the compounded overall return would be 53.86%. GW & Wade’s advisory fees are described more fully in our Form ADV Part 2A, available here.
Clients of the firm who have specific questions should contact their GW & Wade Counselor. All other inquiries, including a potential advisory relationship with GW & Wade, should be directed to:
Laurie Wexler Gerber, Director of Marketing
GW & Wade, LLC