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How Geopolitical Events Affect the Markets

Talking about a personal investment plan against the backdrop of a major crisis may not seem appropriate. Obviously, the situation in Ukraine right now and the suffering of its people transcend the issues we usually discuss on our podcast.

But the reality is that understanding how the markets react to geopolitical issues is part of being a responsible investor, especially as the battlefield expands into the economic arena in unprecedented ways. I hope that today's episode will give folks some important perspective on these issues even as we're all mindful of the larger stakes.

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Bill Keen ·How Geopolitical Events Affect the Markets


1. Learning to live with volatility. 

We often say on our show that successful investors treat volatility as a tax they have to pay on their long-term earnings. It's tough to maintain that perspective in the moment when the news outside is bad and some of your arrows are pointing down, especially if you're a retiree living on a fixed income.

While past performance is not a guarantee of future returns, history tells us that while the markets are volatile and can experience significant double-digit declines, usually they rebound and start growing again.  

One scenario that can happen with people who aren't working with an advisor, is making a decision to sell near the bottom of the market when they see their accounts dropping. I understand that pullbacks and global uncertainty can test your risk tolerance. But what feels safe in the short term could cripple your long-term earning potential and, potentially, jeopardize your security in retirement.

2. Some historical perspective. 

After the terrorist attacks on 9/11, the New York Stock Exchange and NASDAQ closed until September 17, 2001. In the first week of trading after the markets reopened, the Dow Jones Industrial Average dropped more than 14%.

31 days later, the markets had regained those losses. And in the 20 years since 9/11, the Dow has climbed from around 9,000 to, as I write this, over 33,000.

To zoom out further, after the attack on Pearl Harbor on December 7, 1941, the total drop from peak to trough was almost 20%. And, less than a year later, the markets had fully recovered those losses.

Again, I'm in no way comparing the human suffering of a terrorist attack or a war to the fiscal pain of a market pullback. But time and time again, history tells us that market losses after major world events are usually temporary.  

3. Take the good with the bad.

It's very likely that the war in Ukraine is going to exacerbate some economic problems we've been having here in the United States, particularly the rising prices of gas and consumer goods. It’s too soon to tell how badly and for how long.

But it's important to note that many of the key economic indicators we monitor at Keen Wealth are trending in the right direction. Initial jobless claims have dropped to pre-COVID lows. January's annualized retail sales were up 3.8%. Taken together, those figures suggest that people are confident in their jobs and spending money. That could be good for corporate earnings, which are the biggest driver of market returns.

It's also likely that until we have more clarity on the situation in Europe, the Federal Reserve won't make any aggressive moves on interest rates. The less variables that Wall Street incurs, the better the situation will be for the markets.

4. Stay the course. 

Huge world events make us all feel powerless. That can spark a desire to do something – anything – to regain some feeling of control.

That can be a dangerous impulse when it comes to your money.

If uncertainty inspires you to reassess your short-term household budget or try to save a little more, great.

Perhaps you're feeling especially charitable and want to support organizations who are managing the humanitarian crisis.

But if your feelings about this or any other world event have you thinking about pulling out your investments or trying to time the market, please contact us at Keen Wealth before making any impulsive decisions. Our planning process can help to broaden your perspective and keep you focused on your long-term financial security.

About Bill

Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.

KWMG, LLC’s dba Keen Wealth Advisors (“company”) is an SEC Registered Investment Advisor located in Overland Park, KS. The company and its representatives may only conduct business in those states where registered or where excluded/exempt or from licensure. For registration information please contact the SEC or the state securities regulators for the states where the company is notice filed. A copy of the company ADV is available upon request. Advisory services are only offered to clients or prospective clients where the company and its representatives are properly licensed or exempt from licensure. No advice may be rendered by the company unless a client service agreement is in place. This information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy and is for illustrative purposes only. Clients and prospective clients must consider all relevant risk factors involved with each strategy, including costs or fees, and their own personal financial situations before trading.

The views outlined in the book, Keen on Retirement Engineering the Second Half of Your Life, are those of the author and should not be construed as individualized or personalized investment advice. Any economic and/or performance information cited is historical and not indicative of future results. Economic forecasts set forth may not develop as predicted.

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