What impact could Syria have on investors?
It’s important to keep the element of uncertainty in mind when assessing the situation in Syria, because no one can totally foresee the aftermath of any type of military involvement.
What potential impact might the events in Syria have on the financial markets? And what moves, if any, should you take with your own investments?
From an investor’s standpoint, market volatility associated with geopolitical events tends to be short-term in nature.
Nonetheless, even if you are fairly confident that military action in Syria will not have any long-range effects on the investment world, you may still want to consider taking some steps in the near future. Here are a few suggestions:
- As mentioned above, any military operation can have unexpected consequences. While U.S. action seems likely to be limited in scale (i.e., no “boots on the ground”), it would nonetheless be taking place in an unstable region. Consequently, the response to a U.S. strike may lead to additional volatility in the area — which, in turn, could further rattle the financial markets, at least temporarily.
- It’s always a good idea to periodically review your portfolio to ensure that it’s still appropriate for your risk tolerance, time horizon, and long-term goals. You may want to pay particular attention to those holdings of yours that might be especially susceptible to rapidly moving oil prices. When these prices spike, they can drive up energy stocks, for example, but such rises can be followed by rapid descents. You may want to consult with your financial professional to determine if you should take any steps in anticipation of these movements.
- You might think that a period of uncertainty in the markets is the right time to “lie low” for a while, in terms of investing. But that’s not necessarily the case — even in a true “bear” market, which we haven’t entered, smart investors can find quality investments with good prospects. And the same principle applies in times of short-term volatility: The prices of some good investments will decline, giving you the chance to buy them economically.
Wars, scandals, natural disasters, runaway interest rates — all these things have jolted the financial markets but never derailed them.
In fact, we don’t have to go back too far in time to detect a pattern. In three separate events — Operation Desert Storm in 1991, the beginning of the Iraq war in 2003, and the U.S. intervention in the Libyan civil war in 2011 — the same basic sequence of events occurred: In the weeks immediately preceding military intervention, oil prices rose and stocks fell — but once the military actions began, oil prices dropped and stocks rebounded.
What can explain this type of repetition? The answer may largely be found in the nature of the markets themselves. Specifically, the financial markets are always looking forward, gauging probabilities and outcomes and assessing likely risks and rewards. Ultimately, based on all these variables, the markets will assign values to different types of investments. So it may be that the market had “priced in” whatever volatility was going to occur prior to these past Middle East conflicts — and it may have done so already in regard to Syria, as evidenced by the rising oil prices and falling stock prices of recent weeks.
Regardless of your views on Syria, you owe it to yourself, and to your family’s future, to understand how such a military intervention could affect your financial outlook and what investment decisions, if any, you should make.
This article is provided by Lauri Binius Droster, CFP, AWM, The Droster Team, a financial advisor at RBC Wealth Management, 10 East Doty St., Madison, WI. The information included in this article is not intended to be used as the primary basis for making investment decisions. RBC Wealth Management does not endorse this organization or publication. Consult your investment professional for additional information and guidance.
RBC Wealth Management is a division of RBC Capital Markets, LLC, member NYSE/FINRA/SIPC.
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