The best strategy has always been to hang in there …
Amid all the political chaos and financial implications of the war with Iran, it’s worth stepping back and keeping some perspective.
What history tells us
I know it’s hard to comprehend when it feels like we are in a continuous sequence of rolling crises, but every decade brings its own version of uncertainty.
There are wars, inflation0 shocks, financial crashes, pandemics, and so on and so on …
Now step back and put this in perspective:
Since 1941, when the US entered WWII, $1 invested in the S&P 500 would be worth about $12,421 today – and that’s despite all the global crises that have unfolded along the way.
This has included the aftermath of the big war, multiple smaller wars such as Vietnam and the Gulf war, oil shocks, the inflationary 1970s, the dot-com collapse, the Global Financial Crisis, and the COVID pandemic – which shut down the global economy.
Through all of it, long-term compounding has continued to do its work.
To bring it to more current trends, you’ll remember that last year I often wrote about the Magnificent 7 US technology stocks driving the boom in the US share market. You’ll also remember how often I talk about investments moving in cycles – up and down.
So, guess what? While technology stocks drove the market higher last year, this year the Magnificent 7 is dragging the market down.
Technology stocks are now at their cheapest valuations since 2019. Ironically, the rapid rise of AI is starting to undermine confidence in some tech companies, as their business models are under threat from the very technology they helped create.
Stay calm and ride the wave
The point is, markets don’t move in straight lines, and they rarely reward short-term certainty.
Periods of discomfort are often where long-term returns are quietly earned. What feels like instability in the moment is usually just the market recalibrating, evolving and shifting.
Remember too, the ‘narrative of the moment’ is almost always panic-driven and intended to have us react to it in some way. It can also seem like the news is there to stay – a permanent situation.
But wars, inflation shocks, policy changes, and technological shifts are often moments in time and not forever. We’ve seen time and time again that markets absorb the shock, and move on.
Investing is less about predicting the next crisis-free period, and more about staying invested through a series of imperfect ones.
Volatility is actually synonymous with the sharemarket.
Beyond the headlines
So when the news feels overwhelming, it may help to remember that risk is part of the investment story—and always has been.
The challenge is that investors often try to predict and react to it, rather than staying disciplined and focused on the long term.
If history is any guide, those who can do this are ultimately rewarded.
