Inflation, already accelerating to multidecade highs, may have impetus to climb further still, beyond Vanguard’s previous expectations, as the supply of goods from the region is constricted. Higher energy prices coupled with a potentially more challenging business environment owing to the conflict could weigh on economic growth and corporate profits. As a result, equity markets may respond poorly in the short run.
The Vanguard Economic and Market Outlook for 2022 discussed the challenges we expected for policymakers who aimed to promote still-fragile COVID-19 economic recoveries and stifle worrisome inflation. The uncertain events in Ukraine make the policy calculus, especially for interest-rate-setting central banks, more problematic than it had been.
Invariably, the markets will test investors’ resolve yet again. Such environments may turn investors toward unhealthy behaviors such as abandoning well-considered asset allocations and trying to time the market, somehow picking not only the right time to exit, but also the right time to get back in.
Don’t do it. Instead, maintain discipline and focus on what you can control, among the tenets of Vanguard’s Principles for Investing Success. They're what keeps investors, in the long run, still standing.