Hope and discipline amid today's uncertainty

Commentary by Greg Davis, Vanguard chief investment officer

Events in Ukraine are creating a human toll and immeasurable suffering. Economic responses, including sanctions, have led to market turmoil and anxiety about what may come next. An emotional reaction is natural.

When it comes to investing, however, it’s best to resist the urge to act. It’s not easy, but in a situation such as this, we suggest you steel yourself for what may come and try to keep emotions out of investing decisions.

Despite the uncertainty that has gripped the markets and the likelihood of continued volatility, we’ll one day view today’s events in retrospect. Vanguard has studied more than two dozen geopolitical events, some of which roiled the markets, and that gives us hope.

A new challenge for markets and policymakers

Inflation, already accelerating to multidecade highs, may have impetus to climb further still, beyond Vanguard’s previous expectations, as the supply of goods from the region is constricted. Higher energy prices coupled with a potentially more challenging business environment owing to the conflict could weigh on economic growth and corporate profits. As a result, equity markets may respond poorly in the short run.

The Vanguard Economic and Market Outlook for 2022 discussed the challenges we expected for policymakers who aimed to promote still-fragile COVID-19 economic recoveries and stifle worrisome inflation. The uncertain events in Ukraine make the policy calculus, especially for interest-rate-setting central banks, more problematic than it had been.   

Invariably, the markets will test investors’ resolve yet again. Such environments may turn investors toward unhealthy behaviors such as abandoning well-considered asset allocations and trying to time the market, somehow picking not only the right time to exit, but also the right time to get back in. 

Don’t do it. Instead, maintain discipline and focus on what you can control, among the tenets of Vanguard’s Principles for Investing Success. They’re what keep investors, in the long run, still standing.