Should Investors Worry About War?

by Neal Frankle, CFP ®

Have you noticed lately that every time you turn on the TV you hear about yet another catastrophic military conflict? Lately, people have taken the concept of “self-destruction” to a whole new level – and it’s not good. The human cost is beyond comprehension of course. And consider how current events lead to an epidemic of fear and uncertainty. Under those conditions, it’s almost impossible to make investment decisions. It just feels better to sit on the side-lines when war breaks out. Who wants to invest when there is so much bad news?

I understand those sentiments. But the question is does it make sense to shut down when the world seems to be falling apart? We can’t predict the future of course. But we can look at the last 15 years and see how the market did in times of war. Did it make sense to refrain from investing during times of military conflict in the past?

I looked into this myself and the answer surprised me. Here’s a graph that plots a few major conflicts and how many people died on a chart of the S&P 500 over the last 15 years. Of course this is no guarantee of future results and you can’t really invest directly in the S&P 500. But none-the-less, the graph tells a pretty interesting story.



As you can see, past military conflicts were terrible in human cost.  But they didn’t necessarily doom the market. Quite the contrary. The market actually did pretty well once military operations began. That conclusion may seem counter-intuitive to you. It did to me. That’s why I did more research.

I found a unique study done by some well-regarded European academicians who did their own research. They wanted to understand how the threat of war impacted markets vs what effect actual war had.

They looked at large military conflicts dating back to World War II. The looked at how the market performed leading up war and how the market did once the war started. They concluded that the prospect of war usually led to stock market declines. But they also found that once war actually broke out, the market tended to do pretty well.

This is not to say that war is good or that every military conflict leads to prosperity. But I think it’s fair to say that war doesn’t always spell disaster for investors. Other forces are far more important.

Are you changing your asset allocation because there are more global military conflicts? Are you ignoring these events?


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