Ukraine Investment Considerations: Time in the Market Beats Timing the Market

by Adam Hetts of Janus Henderson Investors, 3/16/22

As with most major geopolitical events, the ongoing Russia-Ukraine conflict has caused fear to sweep across global markets since it began in late February. When this fear is added to the existing challenges of rising rates and high inflation, it quite logically leads to questions about the implications for investment portfolios.

When emotions are high and portfolio returns are in the red, it is very easy for that fear and panic to lead investors to make drastic decisions about their investments. At the very least, investors often feel the need to do something – anything at all – in response to drastic market losses and, at the very worst, instinct tells us that we need to react to large losses by selling and large gains by buying. Unfortunately, the reality is that the machinations of the market are usually diametrically opposed to our emotional intuition and our instinctive reactions to market swings can often be the opposite of what’s in the best interest of long-term returns.

While of course it’s important to consider current risks and, if necessary, make portfolio adjustments, we believe it’s important to first stop, take a step back and pause before making potential changes out of emotion or fear of loss.

Value of a Hypothetical $10,000 Investment in the S&P 500® Index from 1999 – 2021

_{Source: Bloomberg. This shows the hypothetical return of a $10,000 investment in the S&P 500 Total Return Index between 1 January 1999 to 31 December 2021, not including taxes, fees or costs. It has been adjusted to show the impact on overall performance if that investment was taken out of the market after significant periods of volatility, thereby missing the subsequent market rebounds. Note: Hypothetical performance shown here is for illustrative purposes only and does not represent actual performance of any client account. No representation is made that hypothetical returns would be similar to actual performance. Past performance does not predict future returns.}

The reality is, timing the market rarely works, and more often it comes at a high cost to investors. For example, a hypothetical investment in the S&P 500® Index on 1 January 1999 would have grown nearly 6x by 31 December 2021 (not including any applicable fees, taxes or costs). If you were to have missed just the S&P 500’s best 10 days of performance during that period, you would have missed out on roughly half of the gains and missing the 30 best days turned that ~6x gain essentially flat.

This makes staying invested sound simple and obvious but the reality is that investors so rarely do it because of the emotional intuition to sell after large losses. But the aforementioned machinations of the market involve the fact that often the largest single day gains are only possible after the largest single day losses – which just happens to be exactly the same time investors are most tempted to sell not buy. That’s not to say that a significant decline will always be followed by a quick and sharp recovery. However, it is a reminder that markets can be fickle and quickly reverse previous days’ moves.

_{Source: Bloomberg. Index represented is S&P 500® Index. Past performance does not predict future returns.}

While the Russia-Ukraine conflict will likely remain uncertain in the days and weeks ahead, we believe situations like this require cool heads from an investment perspective. And while it is far too early to predict the long-term impacts of Russian military action in Ukraine, what we can do right now is learn from history while continuing to monitor the situation.

In an already volatile year, we on the Janus Henderson Investors Portfolio Construction and Strategy team have been touting the importance of having a balanced, flexible and diversified portfolio to help smooth the ride and survive what will likely be a long, volatile year following a few years of historically great gains. Recent events only further emphasize this disciplined, diversified approach, which can help investors, as emotional individuals, have more willpower to stay invested through the upcoming uncertainty while remembering the main goal: time in the market, not timing the market.

Diversification neither assures a profit nor eliminates the risk of experiencing investment losses.

C-0322-42460 03-15-23

Ukraine Investment Considerations: Time in the Market Beats Timing the Market

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