Geopolitical sell-offs are typically short-lived

In times of heightened market risk and volatility, understanding history can help to maintain perspective. From the past, we know that equity market sell-offs spurred by geopolitical events have typically been short-lived.

A new dimension of risk has entered the financial markets with heightened geopolitical tensions and the unfolding situation in Ukraine.

Many investors are understandably asking whether a link exists between current events and financial markets’ performance. They worry that geopolitical developments may be significant drivers of asset returns.

However, when we examine previous geopolitical events from the past 60 years, we find that while equity markets may react negatively to the initial news, geopolitical sell-offs are typically short-lived and returns over the following 12-month period are largely in line with long-term average returns.

Vanguard analysis evaluated the market reaction to 22 geopolitical events, shown in the chart below.


On average, U.S. stocks had a 5% total return in the six months following an event and a 9% total return in the 12 months after an event.

As always, Vanguard believes investors should focus on the things they can control despite all the market noise, such as having clear, appropriate investment goals; developing a suitable asset allocation using broadly diversified funds; minimising investment costs; and maintaining perspective and long-term discipline.

If you are looking for financial advice in these gloomy economic times, please contact us today.

This article has been sourced from Vanguard.

You might also be interested in...


Sign up for regular insights