Investing during war may seem daunting when headlines are filled with crisis, but the stock market has a long history of overcoming such challenges. A single euro or dollar invested in the global market in 1970 would have faced a relentless barrage of ‘reasons to sell’, from the Arab Oil Embargo and the 9/11 attacks to the Global Financial Crisis and recent regional conflicts. Without doubt, the market rewarded those who stayed disciplined.
We’ll get into how markets react to conflict and explore historical performance during wartime. Investors’ behaviour poses real risk. Missing even a handful of the market’s best days can devastate your long-term wealth. We’ll show you how to build a resilient portfolio for investing during wartime while you keep your discipline.
How Markets React to War and Conflict
Markets don’t respond to war with a single, predictable movement. Financial markets tend to react most to uncertainty itself rather than the conflict’s economic effect. Russia invaded Ukraine in February 2022, and global markets declined at first amid concerns about a wider European conflict. The US market recovered within days, and the EU market stabilised within weeks. This pattern repeats across conflicts because markets move through distinct phases.
The Initial Shock Phase
War’s outbreak triggers an immediate ‘risk-off’ move as investors reassess economic risks. The S&P 500’s average one-week drop after a geopolitical shock stands at 1.09%. The S&P 500 fell 6% on average from the market’s reaction to the trough level in 20 major post-World War II military interventions and hostilities. Equity markets pull back modestly. Oil prices move higher amid supply disruption concerns, and the US dollar strengthens as global capital flows toward perceived safe-haven assets.
Stock prices tend to decline substantially during major geopolitical risk events, with the average monthly drop reaching about 1 percentage point across countries. Emerging market economies face worse conditions and experience a 2.5 percentage point average monthly decline. International military conflicts hit emerging market stocks hardest, with the average monthly drop reaching 5 percentage points.
The Information Processing Phase
Investor sentiment has a substantial positive effect on excess returns in the stock market during this period, though this effect fluctuates asymmetrically in the short run but loses its significance over time. Negative sentiment regarding conflicts is associated with increased volatility. Investors learn more about a conflict’s scope and economic risks, and markets stabilise and return their focus to economic fundamentals, such as corporate earnings and economic growth.
The Recovery and Repricing Phase
The market took an average of 28 days to return to its pre-event level in 19 of the 20 evaluated post-WWII events. This phenomenon happened despite some interventions lasting years or decades. The correlation between the shock and later returns fades after the first month and turns negative over longer horizons. Assets that hold up best at conflict’s outbreak are among the weakest long-term performers, and vice versa.
Historical Performance of Markets During Wartime
Data from the stock market during wartime contradicts what most investors expect. Historical records reveal that equities have delivered positive returns during major conflicts and often outperformed their long-term averages.
Major Conflicts and Market Returns
The Dow rose 50% between 1939 and the end of World War II in late 1945, more than 7% per year. The Korean War produced even stronger results. The Dow climbed nearly 60% from 1950 to 1953, representing a 16% annualised growth rate. The stock market grew by 43% from 1965 to 1973 during the Vietnam War, averaging nearly 5% per year.
Large-cap and small-cap stocks both outperformed with less volatility during war times. The Vietnam War was the sole exception where returns fell below the full period average. Small-cap stocks surged by over 30% during World War II, and the Korean War delivered double-digit returns. Stock market volatility was lower during periods of war, except during the Gulf War, when it matched the historical average.
Recent Examples: Regional Wars and Market Resilience
Contemporary conflicts demonstrate similar resilience. The MSCI Poland Index climbed 155.1% (26.3% per year) from Russia’s February 24, 2022 invasion through February 28, 2026. The MSCI Israel Index has risen 113.2% (37.1% per year) since the October 7, 2023 Hamas attack. The S&P 500 gained nearly 10% over the following three months after the Hamas attacks.
The Long-Term Growth Pattern Through Crisis
Research scrutinising armed conflicts since World War II shows that the S&P 500 was higher one year after the onset of conflict about 70% of the time. The markets ended up responding to economic growth, corporate earnings, interest rates, and innovation rather than geopolitical headlines.
The Real Risk: Investor Behaviour During War
Panic selling destroys more wealth than war itself. The human instinct to flee danger works against us when markets fall and turns temporary declines into permanent losses through poorly timed decisions.
The Cost of Timing the Market
Attempting to sidestep volatility during wartime requires perfect execution twice: knowing when to exit and when to re-enter. Investors who changed into cash when the VIX exceeded its historical average, then returned to stocks when volatility subsided, would have slashed their returns since 1990 by nearly 80%. Even a disciplined approach, moving to cash only when the VIX reached the top 5% of its historical range, would still cut returns nearly in half.
Each move incurs transaction fees that gradually reduce capital. Tax consequences from selling can be substantial. Therefore, while you wait in cash for conditions to feel safe, inflation erodes purchasing power, while invested capital compounds through dividends and growth.
Missing the Recovery Period
The market’s strongest days cluster around its weakest ones. Markets rebound sharply after steep drops, before news cycles improve or sentiment changes. After major geopolitical shocks since 1990, a 60/40 portfolio of equities and government bonds outperformed cash more than 70% of the time over one year and always over three years. The average excess returns above cash were meaningful: 7 percentage points over one year and more than 20 percentage points over three years.
Why Cash Feels Safe But Isn’t
Cash may seem prudent for investing during wartime, yet it fails to match the stock market’s track record of delivering inflation-beating returns. Over one month, stocks matched cash’s 60% frequency of beating inflation. At 10 years, stocks delivered inflation-beating returns 87% of the time versus 54% for cash. Over the past 20 years, stock returns beat inflation 100% of the time, while cash managed only 64%.
Building a Portfolio for Wartime Resilience
Protecting your portfolio when you invest during wartime requires careful construction rather than reactive adjustments. The foundations you set before conflict erupts determine how well you weather the storm.
Setting the Right Asset Allocation
A foundation of 60–70% of globally diversified equity index funds, combined with investment-grade bonds, offers broad market exposure. Fixed-income securities offer stability during equity turbulence. Goldman Sachs strategists recommend you divide assets into thirds: one-third exposed to state-of-the-art technology, one-third protecting against inflation, and one-third for risk mitigation. Maintain selective tech and AI exposure in the state-of-the-art segment. Hold real assets, gold, inflation-protected Treasuries, and shorter-duration value stocks with genuine cash flow growth potential for inflation protection. The risk-mitigation portion has bonds, defensive equity styles like low-volatility and quality equities, and selective alternatives.
Rebalancing During Volatility
Rebalancing should occur gradually, rather than in response to sudden market fluctuations. Portfolio allocations drift from intended targets when market corrections occur. A 50/50 stock-to-bond portfolio experiencing a 10% stock decline moves to 47/53 and alters your risk profile. Rebalancing restores your original balance and positions the portfolio for recovery while you maintain discipline.
Maintaining Your Investment Time Horizon
Your time horizon becomes overly compressed during crises and leads you to miss the bigger picture. Financial goals measured in years or decades shouldn’t change based on weeks or months of headlines. Market corrections happen every one- to two-year period. Bear markets occur every five to seven years. These aren’t outliers but part of investing during wartime and peacetime alike.
Diversification Across Regions and Sectors
Geographic diversification serves as a favourable hedge against geopolitical crises since most events affect certain nations far more than others. Spread investments in developed and emerging markets while you cap home bias. Diversification in economic regimes and exposures that respond differently to changes in growth, inflation, and risk aversion builds genuine resilience.
Final Thoughts
Investing during war tests your discipline far more than your portfolio. Markets have consistently rewarded patient investors during every major conflict since World War II, while panic-driven decisions have repeatedly destroyed wealth.
We are here to discuss your plan if the latest news is making you reconsider it. To ensure that your strategy is still appropriate, we can examine your existing allocation, conduct stress tests, or just offer a second opinion. To ensure that your current risk level is still suitable for your long-term objectives, would you want to arrange a quick portfolio review? Speak with us today.
Your greatest defence isn’t predicting the next crisis but building a diverse portfolio and keeping a long-term perspective. You can control asset allocation and regular rebalancing. Stay invested through uncertainty. That’s how wealth survives and grows.