When War Events Sway Your Clients' Investment Strategy

One client Bryant spoke with said he had $5,000 to invest. “If we double your money,” he said to his client, “thats a great thing, but youre only talking about $10,000. Its not going to change your long-term planning.”

Historically, Jacobs recalls, anytime there is a war the market goes up. During the buildup for the Gulf War in 1990, the market dropped, he explains, but then after the military campaign in 1991, there were substantial stock market gains.

But even with the recent market run-up, some observers have their own theories about what was behind it. Some attribute these initial stock market gains to the activity of institutional investors, rather than individuals getting back into the market.

According to one stockbroker with whom National Underwriter spoke, when war broke out many institutional investors decided to lock in gains from their short positions. “Thats probably the number one thing that was driving the market up,” says a representative with Ryan Beck and Company, Livingston, N.J., who asked not to be identified.

Despite the history of the market, and a few calls from investors last week, Jacobs notes that the majority of his clients are “still scared to death to get back into the market.”

For Jeffrey West, a financial advisor with the Cohen Financial Group, Framingham, Mass., many of his clients are concerned the war will take place on U.S. soil. “Weve never had a historical pattern for that.”

West feels that a terrorist attack in the United States would have significant impact on the market “that will bring it back down to new lows.”

Bryant feels that clients watching the war every day need to stick to fundamental investment strategies for long-term planning. While the war may cause some additional volatility, “it should not change the foundation of a long-term strategy,” he says.

Petrizzo admits that even he was tempted to play the market swings. “Imagine if they got Saddam and bin Laden on the same day–what that would do for the market,” he says. But when people start itching to time the market, Petrizzo says its the brokers role to act as an emotional gatekeeper. “The broker keeps your emotions in check,” he says.

According to Petrizzo, these investors need to take a step back, understand the war is going to have an impact and create some volatility but to stick with their plan.

Bryant agrees. “The fundamentals of the market are still there, timeframes are still there. I dont think you can have this reactive investing when youre looking long term.”

Reproduced from National Underwriter Edition, March 31, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.