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Financial
Focus
provided by Michael J Haynes
Edward Jones Investments
Stay
Invested During Turbulent Times
Military
conflict has created a wide range of important
concerns for Americans. Among them are questions
regarding the likely impact on the financial
markets and investment performance. As an investor,
those questions may include: "What will war mean to
the stock market?'' "Will the market rally when war
is over?'' And, perhaps: "Should I pull my money
out?''
These are difficult questions.
Let's look at each of them:
· What impact does war have
on the market? No one can accurately predict the
precise impact of a war on the financial markets.
Military action does not follow a predictable
script. Factors such as the length, severity and
aftermath of a war have a great deal to do with how
the market reacts. Events leading up to war almost
always create uncertainties and fears that push
stock prices down. During the Gulf War, for
example, the market sold off leading up to the
conflict, then rallied when war actually
began.
· Will the market rally
when the war is over? Like the first question,
there's no easy answer to this one. We can't be
certain that history always repeats itself. But
think back to 1990, just before the Gulf War. We
had rising oil prices, the threat of war and the
Dow reached a new low in October 1990. Many felt
the market was a terrible place to be. This sounds
pretty familiar today. That's why it's important
not to let short-term crises and conflicts derail
your long-term investment plan. Following the Gulf
War, one of the greatest bull markets of all time
lay just around the corner. This bull market helped
quadruple the Dow over the next 10
years.
· Should I pull my money
out of the market? As an investor, you might feel
tempted to pull your money out of the financial
markets if you were convinced that a war was going
to cause a significant downturn. But, first,
recognize that military events are unpredictable
and should not be the basis for investment
decisions. In addition to the outcome of any
military action, other factors - including economic
growth, the growth rate of corporate profits, the
level and direction of interest rates and investor
psychology - will likely determine the course of
stock prices in the years ahead.
If
history is any guide, the market eventually
recovers from short-term crises. While no two
events are the same, the long-term trend in the
market has historically been positive.
This
scenario suggests that if you're on the investment
"sidelines'' when the market begins to recover, you
could miss out on some strong growth opportunities
- so stay invested.
Should
you make any adjustments to your portfolio in
response to war? Investing is about developing a
plan and sticking to it. Investors who make
long-term investment decisions based on guesswork
or short-term fears often fall short of their
financial goals.
It's
difficult to conduct "business as usual'' during a
wartime atmosphere. But if you can maintain your
investment focus and discipline, you'll still be on
track toward achieving your financial goals when
peace and calm return again.
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Stone
Creek Crossing
