Wars such as the one unfolding in Iran currently are always disturbing. For investors, there’s additional concern over whether these conflicts will spill over into their investment performance. But it’s important for investors to be cautious about making asset allocation changes in response to such events.
Markets are forward-looking. Prices move in response to changes in information. When unexpected developments arise that investors deem to be poor for markets, markets often have dropped. But the flip side is markets always set prices for positive expected returns. Once the news gets reflected in market prices, investors can still expect positive returns even amid worrisome circumstances.
This is borne out in historical stock returns. Global equity markets have continued an upward climb even in the face of economic and political upheavals. We don’t have to look far for illustrative examples. During the past few years, stock markets have had positive returns despite multiple wars being fought around the world.
This is not to trivialize the destruction wars bring and their impact on geopolitical risks. But history suggests investors may not help themselves by divesting from stocks. For long-term investors, the best bet is usually to stay the course.
DISCLOSURES
All expressions of opinion are subject to change. This information is not meant to constitute investment advice, a recommendation of any securities product or investment strategy (including account type), or an offer of any services or products for sale, nor is it intended to provide a sufficient basis on which to make an investment decision. Investors should consult with a financial professional regarding their individual circumstances before making investment decisions. Diversification neither assures a profit nor guarantees against loss in a declining market.
This article originally appeared in Above the Fray, a weekly newsletter for Dimensional clients. It is republished here with permission of Dimensional Fund Advisors LP. No further republication or redistribution is permitted without the consent of Dimensional Fund Advisors LP.
This article is reprinted with permission from Dimensional Fund Advisors LP (DFA) and reflects the views of its original author, Wes Crill. The content and opinions expressed are those of the author and not necessarily those of Index Fund Advisors, Inc. (IFA). This article is provided for educational purposes only and does not constitute investment advice, a recommendation of securities, or an endorsement of any specific strategy by IFA. Investors are encouraged to consult with a qualified financial professional to address their individual circumstances before making any investment decision.