War in Ukraine, war between Israel and Hamas and war tensions between Iran and Israel prompted selloff of the stocks in recent weeks but in my view this presents a good buying opportunity for stocks and mutual funds.
History shows that war while detrimental in the short term can be beneficial for stocks in the long term.
Defense stocks and index fund S&P 500 are identified as some of the best assets to buy before times of war.
War is always bad and I always condemn it but we are looking here from the perspective of the market and making money.
While war may seem like a rare occurrence over the last 20 years, it is, in fact, more of a constant throughout human history. We have enjoyed a period of relative peace, or at least that was the case until 2022 when Russia invaded Ukraine.
In the last few years, we have seen a significant escalation of tensions between the world’s superpowers. Russia’s invasion of Ukraine has increased the division between the East and the West and China’s ambitions in Taiwan threaten to make matters worse for the West.
Meanwhile, the Middle East, which had been relatively quiet with the U.S. abandoning Afghanistan is now also seeing escalation on numerous fronts.
The Israel-Palestine conflict was re-ignited following the October 2023 attack by Hamas.
Things are now hitting a whole new threat level after Iran attacked Israel with 300 drones on Saturday April 13 which most of them were shut down. Now the world awaits Israel’s response and it looks like Israel will wait with its response towards Iran.
Stocks sold off on Friday April 12 as it became evident that Iran was preparing for an attack and the sell-off has continued the following Monday.
But here’s the bottom line. While war may hurt stocks in the short term, it should not be harmful in the long term, and this can even be seen as a great dip buying opportunity.
While war can certainly negatively impact stocks, most of the time they provide an opportunity to buy at a discount.
Over the course of history, the stock market has generally kept creeping up, even in the face of war. Couple of the examples:
After Pearl Harbor attack stocks dipped 3% and recovered in a month after the Cuban Missile Crisis, we saw stocks rally over 20% that year and 15% after the start of the Gulf War.
This time around I don’t think things will be much different and in fact, this makes me even more convinced about the fact that Inflation Is Inevitable, and will stay with us for a long time.
The U.S. has already committed a vast number of resources towards the Ukraine war, and now it looks like they might be forced to intervene in the situation in the Middle East.
In my opinion, this will serve to justify further fiscal spending, perhaps even supported by loose monetary policy. Ultimately, it will lead to a depreciation in the dollar and a flight to assets, like commodities and stocks.
One of the reasons markets sold off on Friday before Iranians’ drone attack on Israel was a big spike in the US Dollar Index. During times of turmoil, it is usual to see a flight to safety, which today is still the US dollar. However, this won’t be the case forever, and I expect the US dollar to depreciate in the long term.
With that said, now is the time to buy the dip in the right way. I have been preparing for increased geopolitical tensions over the last few months.
We are possibly entering a time of heightened geopolitical tension, which will likely lead to trade wars and inflation. While you might be tempted to hide away in cash, I think buying the right assets will yield a much better return in the long-run. Right asset is for example S&P 500 index fund. I have been buying recently very actively the Vanguard Index fund. It is a long term investment for me. Although I paused during the last week or so because stocks recovered very sharply. Probably I will wait another few months to see how geopolitical tensions will develop around the world.
