Over the weekend the US and Israeli military carried out co-ordinated strikes on Iran, killing Iran Supreme Leader Ali Khamenei and many other senior officials.
As a result, Iran has retaliated, targeting multiple US military assets across neighbouring Gulf countries.
While Keir Starmer has stated the UK “will not join offensive action now”, the Prime Minister has agreed to allow the US to use British military bases for defensive strikes on Iranian missile sites.
The events over the last few days have been devastating and our thoughts are with all those who have been affected. We are all hoping for a quick de-escalation and resolution to this conflict.
However, at times like this it’s also very natural to feel anxious about your investments and what all of this uncertainty could mean for your financial plans going forward.
How have stock markets reacted to the US-Iran conflict?
Global stock markets have opened the week lower, with banks and airlines showing some hefty falls. As a result, investors have rushed to ‘safe havens’ like gold and the US dollar.
The price of brent crude oil initially jumped by 10% off the back of the news and is adding to the market uncertainty. That’s because around 20% of global oil supply comes from ships that travel through the Strait of Hormuz. If oil supply gets squeezed and prices rise, that could feed into global inflation and influence the future path of interest rates.
As more news floods in, markets are now trying to work out how long this tragic conflict could go on for.
So, amidst all this uncertainty, how should investors react?
How to invest during stock market uncertainty
1. Don’t panic sell, think long term
In times like this it’s easy to get spooked by a few big market falls, but it’s important to remember to stay focused on the long term.
While your portfolio might be taking a few hefty knocks now or over the next few weeks and months, these market moves become much less relevant over 5, 10, 20 years or more.
That’s because history has shown that investments are much more likely to go up over the long term and sometimes the best days will follow the very worst.
Being able to block out the noise and stay focused on your long-term financial plan is usually what separates good and bad investors.
You only have to go back as far as last April to see this in action.
Within a week of ‘Liberation Day’ markets rallied again, with US stocks climbing 9.5% — its biggest daily one-day rally since the Great Financial Crisis in 2008.
While markets remained volatile for the rest of April, the US then had its best May since 1990, with the FTSE 100 and the rest of the world following.
All of this shows that sometimes it’s best to just sit on your hands, as hard as it might be, and think about your time horizon — after all, time in the market is much more important than trying to time it.
Investing monthly is a great way to invest during stock market uncertainty.
That’s because when you invest regularly, like with the InvestEngine Savings Plan, you benefit from something called pound-cost averaging, which helps smooth out the ups and downs that come with investing in the stock market.
When prices of stocks or an exchange-traded fund (ETF) are low, your money buys more of that investment. When prices are high, your money buys less. That means over time, you’ll average out the cost of your investments and find a middle ground with relatively low effort.
You don’t need to start with a lump sum of thousands. With fractional investing through InvestEngine, you can start from as little as £20 a month and gradually build your portfolio.
2. Make sure your investments are diversified
Over time, holding a diversified investment portfolio has been one of the most useful ways for investors to reach their financial goals.
This means holding a number of different investments — like stocks, bonds, gold and cash — that won’t all perform the same.
Diversifying across different investments, sectors and parts of the world means all your eggs aren’t in one basket. So, no matter what happens to markets, you should hopefully have something working in your favour.
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3. Are you happy with how much risk you’re taking?
While it might be hard to watch, it’s natural to see your investments go up and down in value — it’s something every investor just has to accept.
Generally though the longer your investment time horizon, the more risk you can take.
Someone who is a few years off retirement isn’t going to have the same portfolio as someone who has a time horizon of 30+ years.
For example, if someone is closer to retirement, they might have more bonds or other investments to help preserve their wealth or start paying an income. On the other hand, someone who is younger might be looking to grow their wealth instead so is happier to take more risk.
However, if seeing your portfolio fluctuate is all too much to bear, then you could be taking on too much risk.
If that sounds like you then it might be worth reviewing and rebalancing your investments and perhaps looking at less volatile areas of the market instead.
If you’re still checking in on your portfolio every day, but you’re comfortable with how much risk you’re taking, how much you’re putting in, and are investing for the long term, then think about taking a step back and let compounding work its magic.
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Important information
Capital at risk. The value of your investments may go down as well as up, and you may get back less than you invest. Past performance is not indicative of future performance.
ETF costs apply. If you’re not sure if an investment is right for you then you may wish to consult a professional adviser for guidance. This communication is provided for general information only and should not be construed as advice.