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An Investor’s Response to Terrorism in Europe

Seth Jentner03/24/2016

As I watch the news coverage on the terrorist acts in Europe, it is easy to be overcome with emotion. We are all filled with unbelief, wondering how people can be motivated by such an irrational hatred.

Our hearts go out to the people who have lost loved ones or who have been tragically injured. This is not the first time we have seen this kind of behavior. Terrorism and violence are far from a new phenomenon.

We will continue to see volatility in the world’s investment markets as the horror of terrorism is translated into uncertainty about our world. The markets typically respond reflexively and negatively to threats to our safety. During such times, it can be tempting to move one’s investments into the perceived safe haven of cash. This is a typical and normal emotional response to bad news.

But as typical as this response may be, it does not mean this urge is beneficial. Fears that global enterprises are somehow worth less because innocent lives were lost will likely prove to be exaggerated.

The world continues to change in response to terrorism but not in a way that should affect the long-term value of one’s investments. Businesses continue to provide their goods and services to people throughout the world. People still need the products provided by businesses, whether food, clothing, shelter, transportation, medical care, or yes, even entertainment.

History shows that people who succumb to the temptation to move their money in or out of investments based on daily news have disappointing long-term results. Instead, consider taking advantage of the short-term market volatility by periodically looking for rebalancing opportunities. Refrain from making well-intended but disappointing market predictions.

Numerous studies continue to show how rare it is to achieve favorable outcomes when moving in or out of the markets as a response to emotional concerns or market opinions. It is during times like these that sticking to a sound and prudent investment strategy generally produces better results.