Should you stop your SIPs and withdraw as the Russia-Ukraine war escalates?

The last two years have been a roller-coaster ride thanks to the COVID pandemic. If that wasn’t enough, we now have a full-blown war raging in Eastern Europe, with a large nuclear power invading its tiny neighbor.

As of the first week of March, nobody knows if the Russia-Ukraine war will end quickly, or if it will rage on indefinitely, or if more nations will get involved.

Given this gloomy and uncertain situation, what should investors do? Is it time for a change in your investment strategy?

Not the first war-led market correction

Global markets have been spooked by the potential consequences of this war for the rest of the world. And rightly so. The way the world works now, it is almost impossible for anyone to escape from a big global event untouched.

But if you take a step back and look at the financial history of wars and crises, one thing is pretty clear: while the market crashes induced by these statistically rare events are sudden, sharp and cause a lot of volatility in the short term, there is almost always a strong recovery that takes equity markets to new lifetime highs.

Recent history is replete with many such instances:

• During the Asian Debt crisis of 1997-98, the Sensex fell from the 4000s to the 2700s in a matter of months. But from there, the index surged to almost 5,900, more than double the low point.
• Then came the double whammy of the Dotcom crash in 2000 and the 9/11 attacks in 2001. From its previous high in the 5900s, the Sensex fell to the 2600 level. But those who invested during that tough period were rewarded handsomely as the Great Indian Bull run of 2003-2007 took the Sensex past 21,000.

• Many of you have first-hand experience with the 2008-09 recession due to the global credit crisis. From the highs of 21000, within a year, the Sensex fell to 8,000. But the rebound from there was an almost unidirectional upward journey to 40000, by 2019.

• Finally, the ongoing pandemic spooked the markets, which fell 30-40 percent in just a month (March 2020). The Sensex fell to 25000 in a few weeks’ time. Once again, from there, it bounced back to touch 62000 a few months back.

But markets always recover.

And when they do, then those who invested during the tough times are handsomely rewarded.

Also read: How to invest when markets are down from all-time highs

Continue your investments

The markets have seen many wars, recessions and geopolitical crises in the past. But they always bounce back. This time, too, it shouldn’t be any different.

When there is a lot of negative news flying around and markets are behaving wildly, there is a tendency among investors to panic, overreact and do something.

But this is exactly what you should avoid. Use these handy pointers to guide you as you navigate the volatility in the markets.

Markets rebound: There is no need to overreact to the news headlines. If you study a bit of market history and what happens when the flow of bad news stops, you will see that markets always rebound smartly from every crisis.

Use this opportunity to buy more: “Never let a good crisis go to waste,” Winston Churchill said once. That quote is indeed quite applicable to investing. So, if you’re investing for long-term goals, then just keep investing as usual. There is no need to make any changes to your investment strategy. In fact, the fall in equity markets provides a good opportunity to invest at lower levels.

Think long-term: Though no one wants a war or crisis to continue, if it does and markets remain down longer, then it is a blessing in disguise for long-term investors in the accumulation phase.

Remain focused on your goals: As of now, most investors’ portfolios are down. And there is nothing to indicate that they will not go down further. But, to reiterate yet again, history tells us these events have a short-term impact on the long-term trajectory of markets. So, you would do well to remain focused on the long term and take advantage of the fall.

So, if you’re investing towards your goals through SIPs, then let them continue. If you have a fresh surplus, then consider gradually investing it in equities. Also, check your asset allocation and rebalance it if the fall in markets has reduced the equity proportion considerably.