Market Volatility and the War in Iran
- Ryan M. Vogel, CFP®
- 12 hours ago
- 2 min read
Key Takeaways
Geopolitical events often create short-term market volatility, especially when uncertainty around energy prices and economic growth increases.
Market declines are normal, with 5% pullbacks occurring most years and 10% corrections happening roughly every 19 months.
A disciplined, long-term investment strategy helps portfolios navigate periods of volatility without reacting to short-term headlines.
Over the past week, the markets have been volatile in response to the US war with Iran. Periods like this can understandably raise concerns, especially when headlines move quickly, and markets react sharply to new information. While this war is concerning on many levels, it is important to remember that market volatility tied to geopolitical developments is not unusual.
Markets often react quickly to uncertainty. No one knows how long this war will last and when oil shipments will be able to restart. Energy shocks are complicated because higher oil prices can slow down growth and result in higher inflation. These conditions make it challenging for the Federal Reserve and will likely lead to no action in the foreseeable future, instead of the two rate cuts the markets had been expecting this year.
For our clients, it is important to remember that your portfolio and financial plan were built with periods like this in mind. Your investment strategy was developed with a long-term, goals-based framework rather than short-term market headlines. Clients with short-term cash needs already have those funds available, allowing the remainder of the portfolio to remain invested for long-term growth. In addition, we intentionally include high-quality bonds in portfolios specifically for times when stock markets become more volatile.
Over the first two months of this year, we have already been actively rebalancing portfolios. We take profits from investments that have been performing well recently and keep investments aligned with long-term targets. This disciplined approach helps ensure portfolios remain positioned appropriately regardless of short-term market movements.
No one knows what will cause the market to go up or down over the next day, month, or year. Every year, we expect the stock market to have a period when it declines by 5%. On average, every 19 months, the stock market will have a decline of at least 10%. The cause of these declines is not predictable and cannot be timed consistently. Our most important investment principle remains unchanged. Avoid letting emotions drive investment decisions. Our clients have a financial plan, an investment strategy, and a cash-flow plan designed to navigate all market cycles. Volatility is an expected part of investing, even if the exact timing and cause are unpredictable. The best action during periods like this is simply to stay disciplined. If markets continue to decline, we will look for opportunities to rebalance portfolios, purchase stock at lower prices, and implement tax saving trades when possible.
As always, please do not hesitate to reach out if you would like to discuss your portfolio or have questions about current market conditions. We are here to help.
