Concerned about world events?

When the recent Middle East conflict broke out, many investors wondered whether it would eventually affect their portfolios. Some global events don’t affect markets, while others trigger corrections or crashes.

If a crisis does cause a downturn, there’s no way of predicting how long a recovery will take.

What history tells us

Sometimes markets experience minimal or short-lived effects, such as last year’s reaction to President Trump’s “Liberation Day,” when falling markets generally rebounded within a month.

However, the opposite may be true. After the 2022 downturn, largely driven by rising inflation and interest rate hikes, markets didn’t return to their previous highs until about two years later. The 2008 global financial crisis led to a significant recession and market decline, and the recovery took almost six years.

Market recoveries can also be surprising. The COVID-19 pandemic market crash in early 2020 was one of the most severe global downturns in recent history, but was followed by one of the quickest recoveries on record, with some markets recovering in just six months.

Investing in a downturn

If a crisis results in a market downturn, you can benefit by sticking to your regular investing.

Say a worried investor considers halting their contributions in a falling market over concerns that new investments may lose value. This investor can lose in two ways. If the market continues to fall, they miss out on buying investments at discounted prices. If the market rebounds, this investor will buy back in when prices are higher.

Or say an aggressive investor wants to sell equity investments during a downturn, intending to reinvest at lower prices when the market falls even more. This move increases risk because the investor could miss a recovery and also buy back in at higher prices. Instead, if they continue investing regularly, they’ll come out ahead—provided markets trend upward over time, as they have historically.