In just seven weeks, the market zeitgeist has pivoted from satisfaction and optimism to anxiety and dismay. Suffice it to say, “Inflation + Putin” has been a toxic combination for investors. Stock prices are 10-15% below the record highs that prevailed at the end of 2021. Bond prices have also declined, albeit much less than stocks, reflecting the anticipation of higher interest rates necessary to arrest inflation. When a crisis hits, a proper perspective can help maintain a balanced outlook on your financial future.

Proper Perspective: “History doesn’t repeat itself, but it often rhymes.”

This quote, usually attributed to Mark Twain, seems timely now. A crisis is unfolding far from home. Diplomatic maneuvers have been unsuccessful. Neighboring countries are bracing for economic and humanitarian fallout. Oil and gas prices have spiked. Stocks have declined throughout the world. A very sad litany, but it sounds familiar.

A look at stock market selloffs from 1987 to 2021 (some of which were provoked or intensified by events in smaller countries such as Kuwait in 1990 or Greece in 2011) clearly shows that, while the causes vary, market volatility is normal. Setbacks happen every year, usually 2-3 times, and financial advisors are accustomed to this kind of turbulence.

A key point is that over the entire 35-year period, the S&P 500 index of stocks had an annualized return of 11%. This provided wonderful wealth creation potential. Staying resilient and disciplined during setbacks is often seen as the price a patient investor must pay to secure long-term results. We believe this will always be the tradeoff for investors.

Principles, not Predictions

Some commentators are second-guessing diplomatic tactics (a job always seems easy when you’re not the one doing it). Others are gauging Putin’s long-term strategy. A few are anticipating opportunistic moves by other adversaries. The possibilities are endless, and some of them are scary.

But predictions remind me of the famous quote about the two kinds of economic forecasters: “those who don’t know, and those who don’t know they don’t know.” So, I won’t offer any predictions. Instead, I think this latest period of distress reinforces the importance of guiding principles for investing success. Three of Bartlett’s favorites are described below.

First is the importance of asset allocation and portfolio diversification. These safeguards help control risk, making them a “way of life” for serious investors rather than something contemplated only in times of stress.

Second, an investor must resist the allure of “market timing,” which can be so seductive when stocks are falling, headlines seem frightening, and others say they’re selling. Instead, look for buying opportunities created by shakeouts, mindful that great companies are even more compelling investments when they can be purchased at lower prices.

Finally, never forget that investing is a marathon, not a sprint. Maintain rational expectations and stay committed to a long-term plan.                                                                      

Like any responsible global citizen, our foremost thoughts are with the people of Ukraine. Falling stock prices seem like a trivial inconvenience compared to the loss and sadness in store for many families. We hope and pray for peace.

James B. Hagerty, CFA, is CEO, Wealth Advisor, Product Manager for the Bartlett Equity strategies, and a Principal at Bartlett Wealth Management. He provides investment advisory services to high net worth individuals and their families, foundations, endowments and non-profit institutions. Jim is a Chartered Financial Analyst.