MARKET COMMENT
The Financial Impact Of Terrorism

By James Carlisle
November 29, 2002

Yesterday was spoiled by yet another vile act of terrorism. Twelve innocent people will not see today and the rest of us are left to carry on in fear of the next outrage.

That fear has already had an impact on the world around us. Industries involved with tourism have been hit by lower bookings and insurance premiums have soared, increasing the cost of doing business for most sectors. Beyond that, there's a natural drain on confidence, which will reduce investment and economic growth.

The terrible fact is, though, that this is now how things are and we're all painfully aware of it. When we ponder an investment in an international hotel chain, then we'll factor the expectation of future terrorist events into our calculations. If all investors are doing this, of course, then a certain level of terrorist activity is already factored into prices.

The market only makes extreme movements when unexpected things come along and, unexpected things being as they are, they're very hard to see coming. The outlook for our world has grown dimmer in the last fifteen months, but the outlook for investments going forward hasn't changed because prices have already adjusted to a level that should give them as good a chance as ever of making a decent return.

So, despite the turmoil around us, very little ever changes in terms of our personal finances. It's still a question of doing the basic things: clear debts, keep enough cash for a rainy day, invest steadily in real assets like property and shares for your long-term future and use cheap insurance to cover risks you can't afford to take. Events will then take their course. We can only hope that people will have the chance to get on with their lives in peace.