Stocks have taken a hit this week as investors react to the Russia-Ukraine military conflict. But experts say you shouldn't shake up your investing strategy just because stock prices are moving.
After a volatile trading day on Tuesday, the S&P 500 marked its first correction — a price decrease of at least 10% from its most recent high — since the beginning of the pandemic. Stocks continued to plummet Wednesday following President Joe Biden's announcement of sanctions against Russia. The S&P 500 was down around 0.5% Wednesday morning. The Dow fell 0.3%, and the Nasdaq Composite, around 0.8%.
The latest price swings come amid an already tumultuous time for the stock market. Inflation is at a 40-year high and the Federal Reserve is expected to hike interest rates as soon as March. Investors may be anxious about their investment portfolios, but experts say to remain calm.
"It's simply a reminder that volatility is an essential part of investing," says Sam Stovall, chief investment strategist at the investment research firm CFRA Research. "During times of elevated volatility and tension, don't allow your emotions to become your portfolio's worst enemy."
How Russia-Ukraine tensions could affect stocks
While geopolitical events like the rising tension between Russia and Ukraine have a fair amount of impact on financial markets leading up to the event, they generally don't have a long-term effect, says Jim Paulsen, chief investment strategist at The Leuthold Group.
"The biggest problem is the uncertainty until we figure out what's going to happen," Paulsen says. "That's been particularly bad in this scenario."
It's no secret that uncertainty in the market leads to volatility as investors try to figure out what comes next. And that volatility leads to fear-based portfolio actions, like the massive sell-off we saw in March of 2020 as worries about COVID-19 hit the U.S.
Stovall also says we've seen multiple military and terrorist actions since World War II, and while the market does fall by about 1% on the day of the event and then decline about 5% in the aftermath, the market does tend to recoup its losses in less than a month. That's because bear markets and recessions are usually triggered by financial crises, and while higher oil prices stemming from the events may stunt economic growth, it's not likely to lead to a recession, he adds.
Paulsen is more concerned with inflation and what action the Fed could take next. Higher interest rates make it harder for businesses and consumers to borrow money, which can help bring high prices under control for goods like food and cars, but also for stocks and speculative assets like cryptocurrency.
This could be a buying opportunity
Market volatility is often seen as a reason to panic — but it can also be an opportunity for investors to buy stocks.
"Use this as a buying opportunity for stocks that you were upset that you missed out on several months ago," Stovall says. Certain sectors, including technology, communications and health care, could be attractive long-term investments and have recently experienced declines, he adds.
But remember, this doesn't mean it's smart to try and time the market's every up and down, which can be a dangerous investing strategy.
Investing advice: The best action is no action
If you have a strong investing plan in place, your best move is likely to sit tight.
"This isn't something that would cause me to be thinking that people should change up their investment allocations," says David Sekera, chief U.S. market strategist at Morningstar.
It is, however, a good opportunity to review your investment portfolio and the risk tolerance that you can handle when we have these market disruptions, he adds. If the current market swings are causing you to lose sleep — maybe because you have more short-term needs for cash — then you should definitely make sure you're well-positioned to meet those needs.
But overall, it's not best to try to time the market, since it's notoriously hard to predict how geopolitical events are going to play out, Sekera says.
"Don't react to the headlines."