2024 – Wars and Elections, should you be concerned for your investments?

In the face of global events such as wars and elections, it's easy to react emotionally and make hasty financial decisions. I get it! Even as financial professionals, we feel the same feelings. However, history and research consistently show that these short-term events have minimal long-term impact on financial markets. Understanding this can be crucial for investors looking to build wealth over time without getting sidetracked by every headline or market dip. Here's why you should maintain your financial planning course despite the short-term turbulence.

The Short-Term vs. Long-Term Perspective

1. Financial Markets Are Resilient

Financial markets have demonstrated remarkable resilience over the decades. Despite numerous wars, political upheavals, and economic crises, the trajectory of the stock market over the long term has been upward. For instance, during the 20th century, the world witnessed two World Wars, the Great Depression, the Cold War, and numerous other conflicts and crises. Yet, the Dow Jones Industrial Average, a key benchmark of the U.S. stock market, rose from around 66 points at the start of 1900 to approximately 11,497 at the end of 1999. This long-term growth trend underscores the ability of markets to recover and grow despite short-term challenges. Now, do we always want to rely on the resilience of North American Markets? Not necessarily, more on that in a second.

2. Long-Term Economic Trends Are Positive

The world is trending in a more positive direction than it might seem from the daily news cycle. Global poverty rates have plummeted, literacy rates have soared, and health outcomes have improved across the globe over the past few decades. According to the World Bank, the global extreme poverty rate fell from over 36% in 1990 to under 10% by 2015. These underlying positive trends support economic growth and, by extension, financial markets in the long term.

Overall, I am an optimist. Some of my good friends who are portfolio managers hold themselves as being “realists” and feel that helps them to make better decisions. For me, I prefer to be an optimist,  but not one that is in denial. I understand that the world isn’t all sunshine and rainbows and there is much work to do. I see it every day in my community work. But that being said, I’ve never met someone who has done well by thinking that the world is going to end tomorrow. I have plenty of hope for the future, understand the hard work and ingenuity it will take to be successful and believe that financially, fortune will favor the bold.

3. Diversification Reduces Risk

This is the point I wanted to come back to. Will North American markets always lead? Likely not forever. Your best friend in creating consistent returns is diversity. There are lots of opportunities in the world and so being so home biased, may not always be the best strategy. With that being said, geographical diversification is not necessarily the best form of diversification. You should go to where the opportunities are and be mindful of where your comfort levels are.

As the Oracle stated to Neo in the first Matrix movie “ temet nosce.” Or in English “Know thyself”.

Diversification is a fundamental principle of investing that helps mitigate the impact of short-term market volatility. By spreading investments across different asset classes, geographic regions, and sectors, investors can reduce the risk of significant losses from any single event. This strategy ensures that investors are better positioned to weather short-term storms and benefit from the long-term upward trend of the markets.

Historical Evidence and Expert Opinions

History is replete with examples of markets bouncing back from short-term events. Research by financial experts underscores the importance of staying invested over the long term. For instance, a study by Vanguard found that investors who stayed the course during market downturns often saw their portfolios recover and grow significantly over time, outperforming those who tried to time the market based on short-term events.

The Importance of Staying the Course

Reacting to short-term events by making drastic changes to your investment strategy can be counterproductive. It often leads to buying high and selling low, exactly the opposite of successful investment strategy. Staying focused on your long-term financial goals and maintaining a well-diversified portfolio is the key to navigating through the volatility and uncertainty of short-term events.

Summing it Up

While it's natural to feel concerned about how wars, elections, and other global events might impact the financial markets, it's important to keep a long-term perspective. History and research show that these events have generally minimal long-term impact on the markets. By staying the course and adhering to the principles of diversification and long-term investment, you can navigate through the noise and continue on your path to financial success. Remember, the world is trending in a more positive direction, and the resilience of financial markets over time is a testament to that progress.

My best advice is to certainly not be numb to these events, but put them in the right place. Some of these events are horrific. We must not lose sight of that. This doesn’t mean that you necessarily need to make changes to your financial plans or investment portfolio, these are two separate things and it’s important, on both fronts that we put these things in the right places. To ensure that we ourselves are protected and on the path to our own success, while remaining compassionate for what people are facing in the world.

- Grant White, Portfolio Manager /Investment Advisor

Grant White is a Portfolio Manager /Investment Advisor at Endeavour Wealth Management with iA Private Wealth Inc, an award-winning office as recognized by the Carson Group. Together with his partners he provides comprehensive wealth management planning for businessowners, professionals and individual families. This information has been prepared by Grant White who is a Portfolio Manager for iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth.

The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore ,they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained here in may not apply to all types of investors. The Portfolio Manager can open accounts only in the provinces in which they are registered. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization. iA Private Wealth is a trade mark and business name under which iA Private Wealth Inc. operates.

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