Stocks: A playbook for investing during war
The best investing strategy during periods of geopolitical strife is to have no strategy at all, said Jeff Sommer in The New York Times. Rather than “panic about what the Iran war may be doing to your investments, try to forget about all of it.” That’s been “the standard long-term investing playbook for times of crisis,” and it still applies today, even as global markets whipsaw on the latest news developments. According to market researcher Jeffrey Yale Rubin, there have been seven major U.S. military campaigns since Operation Desert Storm in 1991. “One year after the start of these conflicts, the S&P 500, on average, rose 12.5%.” Investors who fled to cash missed out on those supersize gains. That’s a good “case for doing nothing” again this time around.
It’s easy to stick your head in the sand if you’re an investor with a long-term horizon, said Annie Nova and Ryan Ermey in CNBC.com. But “those on the precipice of retirement” aren’t so fortunate. They may need to re-evaluate their risk to ensure they can “get through a downturn without needing to sell their stocks at a discount.” Financial experts recommend having “at least five years’ worth of portfolio spending in cash or short-term bonds” or two years “if that goal feels daunting.” Those who haven’t rebalanced their portfolio in a while may be surprised by their allocations. Due to the strong performance of the stock market in recent years, a portfolio that was 50% in stocks and 50% in bonds in 2020 “would now be more than 68% in stocks and around 31% in bonds.”
That traditional 60-40 portfolio split “no longer works” as it should, said Jamie McGeever in Reuters. Investors have long viewed Treasurys as a “hedge against geopolitical, economic, or financial market risk.” But since the pandemic, America’s ballooning debt and elevated inflation have “steadily eroded Treasurys’ status.” Stocks and bonds now “move in tandem, especially during sharp market sell-offs.” That means traditional risk playbooks and diversification methods “go out the window.” Some wealth managers are pushing investors to “explore alternative hedging and diversification strategies,” such as private-credit funds or gold, but those have also come under pressure lately.
Investors should be on the defensive, said Jason Zweig in The Wall Street Journal—against bad ideas. Wars usually bring on a blitz of “opportunistic marketing messages from the financial industry” that promise to keep your money safe by buying into “these funds, this asset, that industry, these AI-driven recommendations, this secret set of trading signals, these proprietary algorithms.” A good financial adviser, though, should talk you out of taking drastic action. A sensible strategy would be selling a few losing investments to offset taxable gains. “Making wholesale shifts in response to fears that might never materialize is not.”