Since the starts of the Iran war on Feb 28, major global stock indexes have dropped an average of 3-5%, with the exception of the energy sector – boosted by the thread in the Strait or Hormuz – where major oil companies gained over $130 billion in combined market value during the first weeks of the war.
War is ugly and the hope is that it concludes sooner than later, with the least amount of human and economic damage. But war is also an inevitable fact of life, even in the 21st century. With that being the case, and the hope that it will be done sooner than later, why not take advantage of it as an investor? The market is essentially on a 5% average discount across the board. More in the case of some stocks and ETFs. For example, the Vanguard European Stock Index Fund ETF is down around 8.5% since the war started. On this side of the pond, the Vanguard S&P 500 ETF has dropped by about 3.5% since Feb 27, the last day of trading before the war started in the weekend.
These numbers may not be massive like what we see in recessions or economic meltdowns, like the 2008 financial crisis or like what we see in the spring of 2020 during the height of the Covid pandemics. But still, a 5% average discount is not too bad, especially if you have been sitting on the fence for too long, waiting for a drop in the market to drop.
On the other hand, if you are a DCA type of person, then you are already and automatically enjoying the discount, with no action needed. This shows the power of dollar cost averaging and how it helps you take advantage of such market downturns. In fact, if you look at the chart below, you will notice that the market tends to go down by average of 5% more than a few times a year. Worded differently, there is not much reason to panic at the market going doing by average of 5% recently, but it still makes for a good buying opportunity.
| Decline Size | Average Frequency |
|---|---|
| 5% drop | about 3 times per year |
| 10% correction | about once every 1–1.5 years |
| 20% bear market | about once every 5–6 years |
| 30%+ crash | about once every 10–15 years |
We have all heard the saying that when others are fearful, we are to act and vice versa. While the market situation is not that depressing at the moment, it still makes for a good buying opportunity, before things are back to normal and start going up again. It is easy to look back later, when the dust has settled, and start asking various “I should have….” questions.