The Boring Truth About Investing During a Geopolitical Crisis

Escalating fighting in the Middle East has introduced another element of uncertainty for the global economy, leaving investors large and small on edge.

US stocks, bonds and the dollar have held steady over the past week. But ahead of what could be a more protracted conflict, I asked my colleague Suzanne Woolley for advice on how investors should be preparing themselves, at least financially.

Suzanne is a longtime personal-finance reporter who has written about her fair share of market turbulence.

Below is our conversation about what to — and not to do — during times like these, edited for brevity.

Charlie Wells: To start, tell me about some of the crises you’ve covered in your career. Which ones stand out to you?

Suzanne Woolley: I’ve been writing about personal finance since around 1986. I remember the 1987 market crash, September 11th. I remember during the Lehman Brothers collapse, our offices were around the corner and we would go by and see people streaming out with their boxes of belongings. In those moments, a bit like now, we were writing about how to make sense of the big developments and what they could mean for your portfolio, what you should do in your financial life.

CW: What do people typically want to know at times of uncertainty, either geopolitical or economic?

SW: The questions I tend to get asked are, “How much should I be in cash? How much should I be in gold? Should I sell out of the market?” They get at this broader idea people also ask me about, how safe people think they need to be investment-wise during a time of conflict.

What are the answers? So much of good financial advice is kind of boring. Don’t get too emotional. The best reaction is a measured reaction. Do nothing. But actually, it’s not always smart to do nothing.

CW: Can you elaborate on that? Are their financial dictums we hear in moments of crisis that actually might be bad for investors, at least if implemented in the wrong way?

SW: You have to remember that all these rules of thumb are just rules of thumb. Some are just unrealistic for people. I’ll hear advisers recommending retirees cope with periods of uncertainty by putting aside as much as seven-to-10 years of income in cash or short-term bonds. In theory, this could be really helpful, allowing retirees to avoid selling out of their portfolios in the event of a down market. But I don’t know that a lot of people can actually afford to have that much set aside in cash. There is a price to safety, and it could cost you in returns.

That touches on a broader point about retreating into cash, which many people might feel like doing whether they are in retirement right now or at any phase of life. But doing so when markets are down can be a really bad idea. You don’t want to sell at the bottom of the market and then wait for two years to get back in when the market has already recovered.

CW: There’s a lot of anxiety-inducing stuff happening right now, both in the US and abroad. Do you get the sense from advisers and the market that “this time is different,” as some fear?

SW: It certainly feels like it’s different this time. But there have been so many times when it feels like the world was burning down. I remember during the 2008 financial crisis, it just seemed like our whole financial infrastructure was falling apart in front of our eyes. I try to really focus on the long run and look at how many challenges our economy has had and come out of over the years.

That said, I feel like there has been a change in that many investors are waking up to the need to invest more internationally. People have basically said forever that you should be well diversified and have at least some international allocation. But a significant number of people weren’t listening. That was easy when the Mag 7 tech stocks were flying high and all it felt like you had to do was own American tech. But as one expert told me, we are in a new era of fragmentation and volatility. Given that, international is coming back into focus.

CW: You’ve written recently about opportunities in this year’s markets. What are some?

SW: Big picture: having a long-term focus helps prevent the volatility from affecting you so much. I really liked a point that Nancy Curtin, global chief investment officer at AlTi Tiedemann Global told me: “Make sure you’re diversified with great companies in great sectors and in areas leveraged to big secular themes.”

Some of those themes may be resistant to economic cycles. Within the context of aging in America, for instance, there are going to be health-care plays. Or with infrastructure, there’s a huge need in America and elsewhere to build and renew it. Those opportunities are going to happen regardless of the pace of GDP, or what have you. Still, identifying the themes is the easy part. It’s finding the great companies that is much more difficult. But opportunities are there, even in times of crisis.

— Charlie Wells

Market Moves

Oil jumped to the highest level since February. The conflict between Israel and Iran is keeping the market on edge about potential crude supply disruptions in the Middle East. West Texas Intermediate has been hovering around $75 a barrel. So far, Iran’s crude-exporting infrastructure has been spared, and most of the fallout has been confined to shipping. The market remains focused on any sign that Tehran may seek to disrupt crude flows across the Strait of Hormuz, through which about a fifth of the world’s daily output passes.

Nippon Steel closed its $14.1 billion acquisition of US Steel. That brought to an end an 18-month effort to combine the American and Japanese steelmakers, the companies said in a Wednesday. The $55-a-share cash deal creates the world’s second largest steelmaker and turns the combined entity into a formidable competitor within the American steel industry. Nippon Steel also gets an important foothold in the US that helps avoid US President Donald Trump’s 50% steel tariffs.