Geopolitical Risk
Wars can shake markets, but prices quickly reflect new information. History shows disciplined investors are usually best served by staying invested.
Wars such as the one unfolding in Iran are always disturbing. For investors, there’s additional concern over whether these conflicts will spill over into their investment performance. But it’s important for investors to be cautious about making asset allocation changes in response to such events.
Markets are forward-looking. Prices move in response to changes in information. When unexpected developments arise that investors deem to be poor for markets, markets often drop. But the flip side is markets always set prices for positive expected returns. Once the news gets reflected in market prices, investors can still expect positive returns even amid worrisome circumstances.
This is borne out in historical stock returns. Global equity markets have continued an upward climb even in the face of economic and political upheavals. We don’t have to look far for illustrative examples. During the past few years, stock markets have had positive returns despite multiple wars being fought around the world.
This is not to trivialize the destruction wars bring and their impact on geopolitical risks. But history suggests investors may not help themselves by divesting from stocks. For long-term investors, the best bet is usually to stay the course.
EXHIBIT 1
Markets Have Rewarded Discipline
Growth of $1—MSCI World Index (net dividends), 1970-2025
Glossary
Expected return: An estimate of average anticipated returns informed by historical data.
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