Investing during times of war


When news headlines highlight tales of war and the accompanying death and destruction, investors tend to become on edge and revert to short-term thinking, perhaps losing perspective on their long-term investment goals. It is important for investors to consider that there have been many times historically when markets performed well during times of armed conflicts.


Human history is filled with stories of armed conflict; the two most devastating wars in terms of the cumulative number of deaths were the Mongol Conquests in the 13th century with 60 million casualties, and World War II from 1939–1945 with 85 million casualties. It may be reasonable to assume that war is an ancestral aspect of human nature and that we will never be free from its vile consequences.

The English word war is derived from the Proto-Germanic word *werz┼Ź, meaning ‘to confuse’, ‘to perplex’, and ‘to bring into confusion’. War certainly brings confusion to public markets, that all family offices must navigate.

Short-term thinking harms long-term wealth creation

A preoccupation with news headlines often leads to an unhealthy focus on short-term investment performance at the expense of a sensible long-term strategy focused on sustainable annual compounding of capital.

Psychologists know that when it comes to snacking on marshmallows or saving for retirement, a long-term approach does not come naturally to humans because our brains are wired to think in the moment. We have an unshakable tendency to project into the future what we have most recently been seeing. This served our ancestors well when they were hunter-gatherers foraging for food and escaping predators, but it is not effective when we are making investment decisions.

How do markets perform during war?

Investment markets have largely shrugged off past geopolitical conflicts. During previous periods of war, the events did not have a material long-term impact on global economic fundamentals or corporate profits.

As an example, from the start of World War II in 1939 until it ended in late 1945, the Dow Jones Industrial Average (the index of the 30 most prominent companies listed in the US) was up a total of 50%, equivalent to an annual performance of more than 7%. The best year in the history of the Dow Jones Industrial Average was in 1915 during World War I when the index value increased by 81.66% to close at 99.15 points.

Similarly, the S&P 500 Index fell 5% on average in twenty major geopolitical events dating back to the surprise military strike by the Imperial Japanese Navy Air Service on the US naval base at Pearl Harbor in 1941. However, the blue-chip index recovered those losses in fewer than 50 calendar days on average. The largest total drawdown of the index was 19.8% with the attack on Pearl Harbor.

Cash is not a solution

It is almost certain that the value of money will be negatively affected by war, this has been true for virtually every war in the past. Wars tend to limit supply, and this pushes up the prices of commodities and goods.

Rising prices diminish the value of cash and make it less valuable. In the worst cases, governments proceed to print money to finance war efforts which inevitable leads to hyperinflation, which makes cash worthless.

Similarly, fixed income investments generally underperform their historical average during periods of war. This is due to the higher rates of inflation (bond returns are negatively correlated with inflation) and higher bond issuance by governments that drives up yields. Investors seeking lower risk during times of war should carefully consider the potential consequences before shifting assets from equities to bonds.

Safe haven assets

Gold's safe haven appeal attracts investors to the metal during times of heightened geopolitical tensions. The gold price tends to react positively to rumours of a war. However, soon after wars are over or when it becomes apparent that the war will be short and successful, gold reverts back to its pre-war value.


It is important for investors to consider that there have been many times historically when markets performed well during times of armed conflicts.

Family office investors should not let short-term headlines dictate their long-term investment plans and should continue to look to acquire productive assets, such as property, shares in quality companies, etc. to allow for the consistent compounding of family wealth over time.

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