What To Invest In During War – The Art of Investing in Uncertain Times
Summary:
Wars can increase the volatility of markets, but they typically don’t have a long-term impact on them. Defense stocks often become popular because of their direct impact on conflicts, but demand for safe-haven investments like gold and even cash can also increase during periods of unrest. As the world processes the recent U.S. attack on Iran and braces for potential fallout, it’s important to remember that human lives are always the primary concern, yet history shows that war can also influence how we save, budget, and invest.
The recent U.S. airstrike on Iranian military infrastructure has reignited fears of a wider regional conflict, unsettling global markets and deepening already fragile geopolitical tensions. While the immediate human toll remains the most pressing concern, investors are also watching how this conflict could ripple through oil markets, inflation trends, and international trade. In response, markets have shown renewed interest in sectors historically tied to conflict, such as defense, energy, and safe-haven assets. These movements underscore a broader pattern: whenever war looms, the financial world shifts, not necessarily with panic, but with cautious recalibration.
While the crisis with Iran dominates headlines, it comes on the heels of another major conflict: Russia’s full-scale invasion of Ukraine, which began in 2022. That war reshaped economic alliances, led to sweeping sanctions, disrupted energy markets, and pushed global inflation higher. Together, these ongoing conflicts demonstrate how geopolitical unrest can quickly ripple through global financial markets. Here’s what you need to know about how wars — both present and potential — may impact your portfolio.
Smart investing strategies during wartime
Many financial advisors, myself included, often stress that good investing advice during geopolitical crises tends to be, well, boring. That’s because measured responses often outperform emotional ones. A key principle: avoid panic-selling.
During high-stress global events, some investors ask if they should shift everything into cash or gold. Others wonder if it’s time to exit the market completely. While these are understandable reactions, pulling all your money out of the market during a downturn and waiting on the sidelines can lead to missing out on recoveries. Market rebounds often begin quietly and quickly, leaving nervous investors behind.
Some experts recommend retirees hold 7–10 years’ worth of income in cash or short-term bonds. This sounds great in theory, but most Americans can’t afford to do that. There’s a cost to too much safety — and it can come at the expense of long-term growth.
Instead of trying to time the market or chasing headlines, focus on keeping your strategy simple and diversified. Use moments of global tension to reassess — not overhaul — your portfolio.
What types of stocks go up during war?
Even during uncertain times, certain industries tend to thrive in wartime. These include defense and energy sectors, as well as safe-haven assets like gold and cash.
Defense stocks
As expected, defense stocks generally benefit during wartime. Companies like Lockheed Martin, Boeing, and Raytheon, major U.S. defense contractors, often see increased demand and higher stock valuations. The recent U.S. strike on Iranian soil has already prompted a spike in defense stocks, signaling increased investor interest in this sector.
Some tech firms that supply communications or intelligence technology to defense agencies, such as L3Harris Technologies Inc., may also experience gains.
Energy stocks
War can cause oil prices to soar, particularly when conflicts involve oil-producing regions like the Middle East. Following the escalation with Iran, oil prices have already edged higher in anticipation of potential supply disruptions.
When energy becomes scarce or uncertain, companies like Exxon Mobil can see large profits, and their stock prices may climb significantly.
Commodities
Commodities such as gold, silver, and copper often gain traction during geopolitical strife. In times of inflation and uncertainty, gold in particular is viewed as a hedge. This has held true following recent tensions with Iran, with investors retreating to gold as a safer bet amid rising risk.
Cash
While not a growth-oriented investment, cash, especially in strong currencies like the U.S. dollar, can offer security. As with previous global conflicts, demand for the dollar often rises during international instability. A recent Wall Street Journal analysis highlighted how the dollar surged following Israel’s attack on Iran, reinforcing its role as a flight-to-safety asset. The ICE U.S. Dollar Index rose about 1% as fear increased — behaving as expected during high-stress geopolitical events.
However, some analysts caution that this strength might be temporary. After a sustained period of weakness earlier in the year, concerns about U.S. fiscal policy, international sentiment, and long-term geopolitical alignment could weigh on the greenback’s future. In the short term, the dollar appears resilient, but its long-run prospects are less certain. For investors, that means cash can be a useful short-term hedge, but it’s not a replacement for a diversified investment strategy.
ETFs
Exchange-traded funds (ETFs) offer a way to invest in entire sectors, like defense or energy, without picking individual stocks. They’re often used by investors looking to hedge against war-related volatility in a more diversified manner.
What types of stocks go down during war?
Discretionary sectors like luxury goods, entertainment, and travel often take a hit during war. If the situation escalates further in the Middle East, expect travel-related stocks to dip as people cancel plans and reduce non-essential spending.
Does the stock market do well during war?
As legendary investor Peter Lynch once noted: “In the last 50 years we have had many periods of economic prosperity and many periods of uncertainty. Despite 9 recessions, 3 wars, 2 Presidents shot (one died and one survived), 1 President resigned, 1 impeached, and the Cuban missile crisis, stocks have been a great place to be.” His perspective highlights that even amid political turmoil and global crises, the stock market — particularly broad, low-cost index funds — has historically delivered solid long-term performance.
While war can stir short-term volatility, history shows that markets don’t always react as dramatically as people expect. A Financial Times analysis noted that geopolitical crises often provoke a muted response in broader markets. Investors may anticipate chaos, but major indices typically reflect a more restrained reaction. This has been evident in recent weeks — even amid escalating conflict between Israel and Iran, U.S. stocks have remained relatively stable.
That’s not to say that geopolitical events don’t matter — they can affect sectors, commodities, and investor sentiment. But the overall market often prices in known risks quickly and moves on. For investors, this reinforces the value of a disciplined, long-term strategy over trying to guess short-term moves driven by headlines.
Historically, markets are resilient in the face of war. For example, while Russia’s invasion of Ukraine sent the S&P 500 down by 7%, it recovered within a month. This rapid rebound surprised many investors and serves as a reminder that markets often price in geopolitical risk swiftly — and that staying invested can help capture the recovery. However, each conflict is different. If the current situation with Iran turns into a broader regional war, markets could see sharper and more prolonged reactions.
When does the stock market perform poorly during wars?
Markets usually underperform in the early phases of a conflict, especially when uncertainty and diplomatic posturing dominate headlines. With tensions flaring in the Middle East, volatility may rise again before settling.
What investments were popular during World War II?
During WWII, the U.S. economy rebounded strongly, and the Dow rose 50% during the war years. Gold remained stable, while war bonds were used to help finance the effort.
- Gold. Its price remained steady, offering a safe store of value during economic uncertainty.
- War bonds. Although they paid lower interest, they were government-backed and appealed to patriotic investors.
How to adapt to inflation
War can drive inflation higher — through supply disruptions, increased government spending, and volatile markets. Following the latest Iran-related escalation, oil and food prices may rise again, impacting consumers.
When inflation hits, make sure your financial habits are solid. That means budgeting, tracking spending, and building an emergency fund. Investors should also avoid putting everything into one type of asset. A diversified portfolio remains the most effective way to navigate war-time uncertainty.
Some advisors also note a shift: more investors are seeing the value of global diversification. For years, U.S. tech stocks dominated portfolios. But in today’s fragmented and volatile world, international investments — including emerging markets and global infrastructure — are regaining relevance.
Key takeaways
- Defense, energy, commodities, and ETFs linked to war-time industries tend to do well during conflicts. Cash and gold also act as safe-haven assets.
- Luxury and travel stocks often suffer during wartime, especially if people pull back from non-essential spending.
- Markets often drop at the onset of war but can rebound quickly — the key is not to panic-sell.
- The current situation with Iran has reignited fears of a larger conflict, which could impact oil prices, inflation, and global markets.
- A well-balanced portfolio, disciplined budgeting, and diversification are essential tools to weather times of geopolitical unrest.
- Consider international opportunities tied to long-term themes like aging populations, healthcare, and infrastructure.
Warren Buffett’s timeless investing wisdom
Throughout decades of economic turmoil — from wars and recessions to market crashes and political crises — Warren Buffett has remained a model of calm, long-term investing. His approach is built on several core principles that are especially relevant during uncertain times like these:
- Invest for the long term. While no one can predict short-term market movements, the long arc of history shows that broad equity markets have tended to rise over time.
- Don’t try to time the market. Market bottoms and tops are usually only visible in hindsight. Waiting for perfect conditions often means missing out on recoveries.
- Buy quality companies. Focus on businesses with strong balance sheets, a durable competitive advantage, and competent leadership — companies you’d be comfortable owning even if the market shut down tomorrow.
- Stay invested through uncertainty. Cash might feel safe in a crisis, but over time, it loses value to inflation and offers little return.
- Be opportunistic, not fearful. When others panic, disciplined investors often find great buying opportunities — not by chasing trends, but by sticking to fundamentals.
These principles don’t guarantee quick gains, but they have historically delivered strong results for patient investors. As Buffett’s track record shows, consistency, discipline, and optimism in the face of adversity often pay off in the end.
Andrew is the Content Director for SuperMoney, a Certified Financial Planner®, and a Certified Personal Finance Counselor. He loves to geek out on financial data and translate it into actionable insights everyone can understand. His work is often cited by major publications and institutions, such as Forbes, U.S. News, Fox Business, SFGate, Realtor, Deloitte, and Business Insider.
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