Markets and Geopolitical Uncertainty

Dimensional Fund Advisors

Wars such as the one unfolding in Iran currently 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.

Source: Dimensional Fund Advisors

This article is intended for educational and informational purposes only and does not constitute specific tax, legal, investment, or financial advice. The information provided is derived from sources believed to be reliable and is based on current tax laws and regulations as of the date of publication, which are subject to change. Aegis Wealth Management, LLC is not a law firm or accounting firm and does not give legal, accounting, or tax advice. Readers should consult with a qualified legal and/or tax professional to understand how these laws and regulations may apply to their unique circumstances. This material is not intended to be relied upon to avoid tax penalties under U.S. federal tax law. Past performance does not guarantee future results. All investing involves risk, including risk of loss.