Commentary by Greg Davis, Vanguard chief investment officer
A new dimension of risk has entered the financial markets with an escalating conflict in Ukraine. This adds further pressure to markets when they were already dealing with brisk inflation and preparing for an expected cycle of interest rate hikes from most of the world’s central banks.
We know, however, that stock markets have historically been resilient to geopolitical risks over the long term, much as markets have always been resilient in the face of other risks. That’s why we expect the markets to work themselves out, reaching new heights over time and at varying paces. These rises will sometimes be punctuated by sharp declines. This is how it works.
So now is not the time to abandon well-planned investment strategies and thoughtful portfolio construction. Now is the time to support clients through the turbulence; to remind them we knew this day would come and that it will pass. I wish I could say when it will pass. That, unfortunately, is not how it works.
In the meantime, if market volatility throws the mix of stocks and bonds in client portfolios out of kilter, you may have a good opportunity to restore them to the desired state. Rebalancing is a useful strategy for ensuring client portfolios remain within the targeted asset allocation and, ultimately, to keep them on track to meet their investment goals.
The Vanguard Economic and Market Outlook for 2022: Striking a Better Balance offers context to the economic challenges ahead and may help remind clients to think long-term. It highlights the delicate relationship between economic stimulus and economic self-sufficiency.
Anxious clients should also remember our Principles for Investment Success. It’s an enduring story about maintaining perspective, tuning out the day-to-day noise that can lead to regrettable decisions, being true to your goals and embracing the power of the long term.
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