With tensions again escalating in the Middle East, investors should remain calm and stick to their long-range investing plan. According to investment research firm CFRA, since World War II, the average market loss after military or terrorist shocks has been just 5%, measured by prices for Standard & Poor’s 500-stock index. The average time it has taken for stocks to bottom is 22 days, with the market recovering all losses in an average of 47 days. The biggest hit came from the attack on Pearl Harbor in 1941, when stocks lost 19.8% and took 307 days to recover. Iraq’s invasion of Kuwait in 1990 triggered a 16.9% drop, recouped in 189 days. More recently, in 2017, North Korean missile threats shaved 1.5% off stock prices; the loss was erased in 36 days.
As for worries about spiking oil prices, these days, with increased U.S. crude production, violence in the Persian Gulf region isn’t likely to result in shortages. Nor are oil prices likely to climb high enough to seriously damage the U.S. economy. Expect gold prices to jump when the headlines get scary, but fight the urge to speculate: Gold has rallied sharply already over the past year. In general, a small amount of gold can make sense, via an exchange-traded fund such as iShares Gold Trust (symbol IAU), as a portfolio diversifier, inflation hedge and insurance against catastrophe.
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