Recent events in the Middle East have understandably unsettled investors. But history consistently reminds us of one important truth: investors who stay diversified and ride out volatility are often the ones who come out ahead.
On Saturday 28 February, and following weeks of anticipation, the United States and Israel launched air strikes on Iran which resulted in the death of Ayatollah Ali Khamenei – the country’s Supreme Leader for nearly 40 years.
Markets responded to the attacks on Iran in a similar way to Russia’s invasion of Ukraine four years ago. Oil and gas prices rose following the closure of the Strait of Hormuz (a strategically important shipping route), stock markets fell following risks to global growth, all whilst traditional “safe haven” assets such as the US dollar and gold rose.
At times like this, headlines and relentless news flow can feel overwhelming. It is therefore important to place market reactions into context. In fact, geopolitical shocks are not uncommon and markets have faced many similar events over the past several decades.
Learnings from history: Don’t panic
Many investors will be feeling the stress and uncertainty associated with the current events. However, those tempted to adjust their investments should remember that throughout history, reacting during conflict can often lead to more harm than good.
Since 1956 there have been more than 40 major geopolitical shocks affecting global markets. Despite the short-term volatility, US equity markets have, on average, experienced positive returns of +5.4% in the six months following the event.
As the chart above shows, three of the major Middle Eastern conflicts led by the United States were followed by share price gains in the 100 days that followed, even at a time when the world economy was far more dependent on oil and gas.
If we cast our minds back, recent history provides a similar example. In early 2025, markets experienced a sharp sell-off following the announcement of President Donald Trump’s ‘Liberation Day’ policies. US equities fell almost 20% between February and April 2025, before recovering to end the year 17% higher than 1 January. Despite the severity of the initial reaction, it provided a timely reminder of markets’ ability to recover from unexpected events.
Perspective matters
It is uncomfortable to see your portfolio fall in value, and it’s perfectly natural to feel the urge to “do something”. But reacting emotionally in moments like this is known to cause more harm than good. Less disciplined investors will react in the heat of the moment by “panic selling” their investments – one of the biggest investment mistakes. However, the decision to sell out at these levels will cause investors to miss out on the subsequent recovery.
It’s crucial to remember that staying calm during short-term volatility is what is required for the chance of higher long-term returns whereby the power of compounding can take effect rather than potentially crystallising losses. Over the last 20 years, 70% of the best 10 days happened within two weeks of the worst 10 days (Source: Factset).
As the below chart indicates, missing the 10 best days in the stock market (which come after the worst days) will reduce your annualised return by 3% a year. Meanwhile, missing the 50 best days dramatically reduces your annualised return by 10%.
This means that whilst it may be tempting, trying to predict how events will unfold can destroy value over the long-term. Silencing the noise, remaining invested and allowing returns to compound over the long-term is usually the best strategy in building long-term wealth.
Diversification: Your winning strategy
In this environment, diversification remains one of the most important tools available to investors. Diversification does not eliminate short-term losses and it can feel frustrating when multiple asset classes move lower at the same time. However, its purpose is to build resilience within portfolios so that the impact of any single shock is reduced.
The principle behind diversification is straightforward: different asset classes respond differently to economic conditions. When one part of a portfolio is under pressure, another may behave differently or even benefit from the same environment.
For example, periods of rising inflation can place pressure on bonds as higher interest rates reduce the value of future payments. In contrast, real assets such as commodities or infrastructure, can sometimes benefit from inflationary environments and help provide balance within a portfolio. Holding a broad mix of asset classes therefore helps reduce reliance on any single market outcome.
Pushing through uncertainty
At times when both equities and bonds are under pressure, the experience can feel unusual and uncomfortable. However, these periods are still part of the normal investment cycle. Over the longer-term, investment outcomes continue to be driven primarily by fundamental factors such as economic growth, inflation trends and the credibility of government policy. Investors who remain disciplined, diversified and focused on long-term objectives have historically been best positioned to navigate these environments.
It is also important to remember that losses are only realised if investments are sold. Unless there is a need to withdraw funds, short-term market movements do not permanently reduce long-term wealth. Allowing investments time to recover has historically been one of the most effective ways to navigate periods of market volatility.
Staying disciplined during uncertain times
This political episode reinforces a long held investment principle. While geopolitical events are inherently unpredictable, their impact becomes far more manageable when portfolios are diversified and investors remain disciplined.
In most cases the appropriate response during periods of uncertainty is not to react to short-term headlines, but to remain focused on long-term objectives – ensuring portfolios remain appropriately diversified to withstand future shocks.
[i] When markets keep shifting, it can paralyse you from making smart investment decisions. In need of some guidance? Call 03300 564 446 or get in touch via our contact form to learn more.
This article is for general information purposes only and does not constitute financial advice or a personal recommendation. Past performance is not a reliable indicator of future results. Investments can rise or fall in value, and you may receive less than you originally invested. Tax treatment depends on individual circumstances and may change in the future.
