Disbelief,
fear, grief, anger — these feelings were
common after the horrific events that
shook our nation on September 11, 2001.
Just as humans experienced waves of
emotions, the stock market experienced
waves of volatility. However, it’s
important to remember that America has
surmounted crises before. Examining how
some past global problems have affected
the U.S. stock market may help you
better grapple with the economic and
investment uncertainties of crisis
events.
Action
and Reaction
It may reassure you to know that the
stock market has historically rewarded
those who stayed the course during
tumultuous times, although past
performance cannot guarantee future
results. For instance, the first trading
day after the Cuban Missile Crisis
(October 23, 1962), the S&P 500 fell
3.78%. Yet only six months later, it had
surged 24.66%. More recently, over the
one-month period after Iraq invaded
Kuwait — a move that eventually led to
the first Gulf War — the S&P 500
declined 9.12%. One year later, the
index had jumped 10.16%.*
Sometimes the
market’s rebound has been slower in
coming. For instance, after the bombing
of Pearl Harbor, the S&P 500 experienced
an initial drop, rose slightly after one
month and then found itself lower six
months after the attack. But by VJ Day,
less than four years later in August
1945, the S&P 500 had rebounded 57%.*
Moving
Forward
Of
course, economic developments take time
to play out and markets often remain
highly volatile in the immediate wake of
a world crises. Aside from keeping
history in mind, how might you cope in
our ever changing world? Consider these
suggestions:
·
Focus
on your long-term financial plan rather
than short-term market dips.
· Be
realistic, but not fatalistic, about
current market conditions and returns.
Investors prepared for occasional
declines will be less likely to fall
prey to panic selling.
· Keep
your portfolio well diversified to help
cushion volatility.
· Get
to know your finances better and review
how different accounts — such as IRAs
and employer-sponsored retirement plans
— are invested.
· Review
your portfolio and make sure that your
risk tolerance meshes with your
financial goals and time horizon.
· Speak
with a qualified financial advisor
before making changes to your portfolio.
He or she can help temper emotional
investment decisions.
Remember that
while our nation has faced crises
before, the economy and the stock market
have recovered, in time, stronger than
before.
* Past
performance is no guarantee of future
results.
