How the Russian-Ukrainian crisis is rocking markets and portfolios
Even so, long-term investors with well-diversified portfolios of high-quality stocks and bonds – whether held directly or through low-cost mutual funds and exchange-traded funds – will be probably able to overcome this crisis, as they have done many others.
While stocks often fall amid global turmoil, US Treasuries tend to rally as investors seek safe havens and drive their prices higher. Bond prices and yields move in opposite directions, and as interest rates rise, Treasuries have lost value this year. But during a major stock drop, they typically provide a short-term buffer for portfolios that hold them.
Weathering a storm in the stock market has been a good long-term strategy. A year after the bombing of Pearl Harbor in 1941, the S&P 500 gained 15%. A year after the American invasion of Iraq in 2003, it had increased by 35%. History shows that just a year after most of the crises that rocked stock markets, the S&P 500 stock index rose.
The stock market during the Cold War
The Russian hostilities in Ukraine could be the start of something much bigger: a geopolitical shift that plunges the world into a 21st century version of the Cold War. But even if that’s the case, the hard numbers suggest the financial implications for cautious, diversified investors who live far from immediate danger zones might not be so dire.
The Cold War was destructive and debilitating for large populations, but it was a great time for stock market investors. Even during recessions and regional wars, the Dow Jones Industrial Average has performed exceptionally well.
Here are the numbers I calculated over the Presidents Day long weekend:
From President Truman’s March 17, 1948 speech to Congress criticizing what he called the Soviet Union’s expansion of communism in Eastern Europe, until late December 1991, when the Soviet Union ceased to exist, the Dow Jones returned 10.05%, annualized. In the nearly 30 years since then, through Friday, the Dow Jones has returned 10.77%, annualized, slightly better than during the Cold War, but not by much.