The start of 2022 is not allowing us to enjoy the strong returns of 2021 for very long. Russia’s campaign against the Ukraine is unequivocally wrong and the world is reacting strongly through economic sanctions and more.
In stressful times like these, it is crucial to step back and see what is happening today in the context of history. Conflict and geopolitical tension are a constant, not an exception. Stock markets sway between hope and fear as these tensions arise and recede over time.
Despite the uncertainty that we’re facing today, remaining calm and steadfast is the best way to weather the storm.
As investors, we get paid to live through these cycles of hope and fear, but only if we see them for what they are in the greater context of stock market history. There are two very important lessons that past markets crashes and corrections have taught us:
- While we can’t predict what will happen next, we know that markets will eventually recover.
- Getting out and “waiting for the dust to settle” never works.
In a recent blog, Ben Carlson dispels some classic myths about investing in difficult times like these. His blog is always a worthwhile read, and this one is particularly poignant.
There are a few silver linings cushioning the blow. International diversification is paying off after many years of pre-eminence of the US stock market. While the US market is taking the brunt of this downturn the Canadian stock market is down far less because of the strength in commodities prices. Emerging Markets are also down far less than the US.
The tilts to value and small cap stocks in PWL portfolios are also providing a cushion in the downturn. In Canada and the US, these tilts are improving returns by about 4% on the Dimensional funds relative to their benchmarks, while in the international markets, the cushion is about 2%.
Watching the news unfold is scary and painful, as we think about the lives that are affected by this conflict. While we wait and hope for a peaceful resolution, it’s important to remember your long-term goals and maintain the discipline needed to achieve them.
 Source: Dimensional Fund Advisors Canada ULC, based on year-to-date returns to Feb. 23, 2022