Mar 12 • 2 min read
War, Oil, and Your Portfolio
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With conflict in the Middle East dominating headlines this past week, many difficult questions are being asked: How many countries could ultimately become involved? How long might this conflict last? How many lives will be lost? Could the violence spread beyond the region? And finally—though far less important given what's at stake—what might this mean for the stock market? I won't pretend to offer political or military analysis here; there are far more qualified sources for that. But there is one honest answer that applies to nearly all of these questions: Nobody truly knows. War represents the very definition of uncertainty. Recent conflicts like Russia-Ukraine and Israel-Gaza have lasted far longer than most expected. From a humanitarian perspective, that uncertainty is deeply unsettling. From a market perspective, however, history tells a different (and often surprising) story. *** Before we dive in, did you catch this week's podcast? 👇 Uncertainty & WarGeopolitical conflicts often dominate the headlines, but their long-term impact on markets has historically been limited. During both World War I and World War II, markets fell sharply at the outset but later recovered and ultimately finished meaningfully higher by the end of each conflict. The pattern holds in more recent history as well. Looking at major geopolitical events since the Korean War, the S&P 500 has gained ~14% on average in the 12 months following the event. Short-term volatility is normal and expected, but geopolitical shocks have rarely altered the long-term trajectory of markets. What Oil Prices Are Telling UsOil is up sharply since the war began, and rising energy costs have real consequences for households, companies, and inflation. Here too, history offers a counterintuitive perspective. Over the past 40 years, S&P 500 returns have actually averaged higher in years when oil prices rose than when they fell—13.1% versus 11.3%. What happens in more extreme scenarios? For example, last week oil jumped more than 5% on back-to-back days. Historically, when that occurs, stocks tend to be higher 1, 3, 6, and 12 months later more often than not. At the end of the day, the key variable is duration. A shorter conflict likely means temporary disruption. A prolonged one could have more meaningful economic consequences. Nobody knows which scenario will unfold, but that kind of uncertainty isn’t new to markets. Why Planning MattersThis is precisely why thoughtful financial planning exists. We cannot predict geopolitical conflicts, recessions, or market corrections. But we can prepare for them. One way we do this is by building a war chest of cash and safe bonds to cover several years of spending needs, so that market disruptions don't force difficult financial decisions at the worst possible time. The goal of planning is to create the conditions that allow patience when patience is most needed. The Bottom LineOver the past two decades, investors have navigated wars, recessions, financial crises, pandemics, and countless alarming headlines. Long-term investors who stayed disciplined continued to benefit from the growth of global businesses and economies. If current events are weighing on you, that's completely natural, and many of us share the same concerns. But the reason we plan carefully, and stick to those plans, is to make thoughtful decisions rather than emotional ones when uncertainty appears. Most of the financial goals we care about lie many years into the future. Keeping that perspective is what allows us to navigate even the most difficult headlines. 📚 What I've Been Reading
Thank you for reading! Please reply to this email with comments, questions, and/or feedback. Stay wealthy, Taylor Schulte, CFP® |