It is best not to do anything
In recent years, many people have begun to invest in stocks. They were attracted by high-yielding growing markets. Last year alone, for example, the US stock index S&P 500 improved by about 27 percent. Investors who bet on stocks benefited from high returns.
This year the situation is different. Since the beginning of the year, stock markets have been accompanied by corrections. They intensified after Russia invaded Ukraine. The S&P 500 has been losing about seven percent since the beginning of the year, with a loss of over 13 percent in early March. Such spills can scare many people. In a panic, they then withdraw their money and end their investment at a loss.
Experts recommend avoiding such reckless steps. When assessing the degree of risk for your own investments, the impact of the crisis on the markets in which you have investments should always be assessed first. The effects of the war in Ukraine will have some impact on economic activity in the world. However, unlike the post-2008 financial crisis and the recent covidu pandemic, the impact on advanced western countries will be severely limited. Financial markets emerged from both crises with new growth. In the current crisis, I expect a clearer impact on Western markets, where the vast majority of investments are located.
Investing will affect the war only briefly
According to him, the United States expects solid growth this year. This will not affect the recent increase in interest rates by the local central bank. Although rising interest rates will slow stock market growth, stocks could still end this year.
Even in the past, it can be seen that the stock markets managed to recover quickly in the event of war conflicts and return to growth. The decline in markets due to war conflicts typically lasted a maximum of several weeks, averaging only 19 days. And it took another 43 days for the markets to erase losses and reach a positive point. There is no reason to believe that this time it will be different. Especially if the markets support strong interventions by central state authorities and international institutions.
Even if markets return to growth, investors cannot expect to continue to deliver such high returns as in 2021. In the long run, such high growths are unsustainable. In the coming years, according to analysts, average yields will range from 5 to 7 percent.
Another spill is possible
High inflation, combined with low economic growth, could cause markets to fall further by 15 to 20 percent in the coming months. Nevertheless, there is no reason to resort to ill-considered solutions, such as the sale of shares and stocks in a portfolio. Anyone who would like to invest part of their financial assets in gold, for example, has already missed the right moment, as the price of gold after the initial rise after the outbreak of war has already dropped to almost the same level as it was for February 24. Investment in financial markets remains the only way to offset high inflation in the long run.
According to him, bonds, which are more harmful to inflation than to stocks, are not an alternative. In the following years, they could generate an annual yield of 1 to 2 percent. In investment portfolios, they will thus rather play the role of a shock absorber, but they will not be the main engine of money appreciation.
Adherence to the originally chosen investment strategy and investment horizon is the best decision in the current situation. Although market developments may be even more unfavorable, regular investment is needed in a disciplined manner.