I don’t normally take geopolitics into account when deciding whether to buy UK shares. This is just one factor affecting their performance. Yet Russia’s brutal invasion of Ukraine is impossible to ignore, as it has plunged us into a frightening new era.
The FTSE 100 has fallen more than 500 points since Russian President Vladimir Putin shocked the world by sending in the tanks and troops. At time of writing, it stands below 7,000, and could have further to fall.
Decisions over whether to buy or sell UK shares seem trivial in comparison to horrific events in Ukraine, but they still have to be made. Some people may be ready to sell up and pile into cash and gold, but I’m not one of them.
UK shares will fall further
I plan to leave my money invested for at least another 10-15 years. With luck, this should give the FTSE 100 sufficient time to overcome current volatility and UK shares will fly to new highs. They should also generate plenty of dividends along the way.
Another reason I’m not selling my UK shares is that the impact of war on stock market performance is impossible to gauge, as history shows.
In 2014, when Russia invaded and annexed the Crimea, the US S&P 500 Index tumbled 6%, yet it quickly bounced back. It was the same story when the US invaded Iraq in 1991, and again in 2003. On both occasions, stock markets plunged more than 10%, but recovered their losses within months.
On the first day of trading after the September 11 terror attacks on the Twin Towers, the Dow Jones crashed 14%. By November, it was back. World War 2 followed the same pattern. US shares crashed when the Japanese attacked Pearl Harbor in December 7, 1941, but the Dow ended the war 50% up.
While war carries a horrendous human cost, stock markets soon find their footing. Just as they did after the financial crisis and Covid-19 crash. The main factor that affects share prices is still individual company performance.
Hostilities could be bad news for some UK shares, such as airlines, but may boost others, such as defence companies, oil explorers, gold miners and utilities.
I’m investing for the long term
I’m not saying UK shares will emerge unscathed. The big risk is that the war will send energy prices and inflation skyrocketing. This will squeeze consumers and businesses, and crush economic growth. Company profits will fall, and stock markets will follow.
I’m bracing myself for a few bumpy years. There’s nothing new in that, it’s been a bumpy millennium, yet I’ve still built up money for my retirement in that time.
I do that through buying UK shares when they look to be good value. Typically, I look for companies with loyal customers, solid revenues and pricing power. I reinvest all my dividends for growth, which means I passively pick up more stock when markets are down.
Of course the war could spin out of control. If that happens, I’ll have bigger things to worry about than UK shares.