There is chaos in West Asia, and global markets have been oscillating wildly. But rather than panic about what the Iran war may be doing to your investments, try to forget about all of it.
That, in a nutshell, is the standard long-term investing playbook for times of crisis.
It’s not the most exciting approach. You may be able to profit if you behave opportunistically. Buy and sell energy and military stocks — or gold, or US Treasurys, or anything else that may be the flavour of the moment — and do so at just the right time. But speculating in the markets and consistently coming out ahead is hard to do.
Academic wisdom suggests simply aiming for an average market return over the long haul is a sensible approach — and, probably, the best strategy for most people. So if you already have set up your portfolio appropriately, using cheap, diversified index funds to hold the entire stock and bond markets in a reasonable proportion, there is no reason to make abrupt changes — and plenty of reasons to avoid acting hastily.
History shows that doing nothing has generally been a fine strategy when the markets act up, whether the immediate cause of the trouble has been military conflicts, natural disasters, nuclear power plant accidents, political shocks or nearly any other abrupt, unexpected event.
Long-term stock market returns have been fabulous, and high-quality bonds have usually — but not always — buffered portfolios in times of trouble. Avoiding adjustments in midcourse is frequently the best policy.
And yet
The logic here is sound, but I readily admit that it’s not foolproof. Economic recessions are bad for nearly everyone and certainly for the markets, and if the crisis in the Persian Gulf sets off a recession, it could conceivably take a long time for a full recovery.
Even more potentially troubling, the buy-and-hold, do-nothing approach is based on the assumption that the future will resemble the past and that what is happening in the Persian Gulf will not result in an irrecoverable disaster for the entire region and the world.
As I’ve pointed out repeatedly, the Trump administration is ignoring previous norms and is trying to change the world. In this case, the bombing of Iran and the killing of many of its top leaders have been followed by declarations from US and Israeli leaders that they will continue the assault until they demolish the country’s capacity to fight back. Iranian reprisals in the gulf have already begun. They may not end there. President Donald Trump’s decisions could have unintended consequences for the United States.
The US stock market may be particularly vulnerable to setbacks because it has become highly concentrated and highly priced, largely because of investor enthusiasm about artificial intelligence.
New York Times News Service
