Many want to know what the recent news of rapidly rising tensions between Russia and the Ukraine means to their wallets. The answer will surprise you.
The crisis intensifies
The unfolding crisis and tension between Russia and the Ukraine is reaching new heights, as this week the Prime Minister of Ukraine said Russia "wants to start a third world war." President Barack Obama spoke with the leaders of France, Germany, Italy and the United Kingdom to suggest Ukraine was taking "positive steps," but Russia hadn't, and instead "had in fact continued to escalate the situation."
The leaders were hopeful Russia would respond, but the United States is already prepared to begin imposing sanctions on Russia as a result of its recent moves.
This has all led many to wonder what the potential impact could be to both life at home and abroad.
The personal impact
Undoubtedly, one hopes the tensions are resolved and no serious crisis or conflict occurs. And if that isn't the case, the impact goes well beyond the wallets of those here in America. Yet it's critical to remember something when it comes to the stock market.
Looking back to one of the most heightened times of unrest in our nation's history, from the beginning of 1940 to April 1942 as World II began, the stock market plummeted nearly 40%, as the S&P 500 dropped from $12.30 to $7.84.
Time Magazine ran an article in June of 1940 entitled "Stockmarket to be Closed?" which questioned the future of the market itself. And there's no question the concern surrounding safety of personal finances paled in comparison to questions surrounding personal safety.
Yet it's critical for those considering investments to realize the stock market isn't something which should be viewed with the short-term in mind. Taking the long-term view shows even despite the immeasurable tragedies of World War II, just how remarkable the return of the stock market over the fifteen years from 1940 to 1955 happened to be:
As you can see, even despite the 40% drop, it nearly quadrupled over those sixteen years. In fact, it averaged a growth rate of 8.5% each year.
The key takeaway
When it comes to investing, there will always be questions surrounding short-term results -- the basis of some are tragic while others trivial -- but those who, with patience and trust, understand returns occur over decades and not days are the ones who set themselves up for long-term success.
Warren Buffett noted in his most recent annual letter the money he will leave in a trust for his own wife will be placed into "a very low-cost S&P 500 index fund," and he believes "the trust's long-term results from this policy will be superior to those attained by most investors."
No matter the circumstances, simply placing money each and every month into an index fund that mimics the S&P 500 over one's lifetime has long delivered success.
Investing, like life, can seem scary. But as Buffett himself suggests, no matter the circumstances, trusting in the proven ability of the American economy over the long-term is critical to success.
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