A war can have a significant impact on how investment markets perform, and subsequently how investors will invest their money during times of military conflict. Wars create economic and political turmoil that affects the performance of key industries, such as manufacturing, retail, and financial sectors. Moreover, inflation becomes a constant threat to investors’ savings and returns.
To combat the adversity in domestic and global markets, investors need to adjust their investment portfolio holdings to include assets that offer lower exposure to risk and preserve their wealth. The ideal strategy is to avoid volatility while maintaining an appropriate rate of return. Popular investment choices during times of conflict include certain stocks and hard assets.
Although there are definitely risks associated with stocks, there are some stock market investments which perform well in times of war. Foremost these include oil companies and certain manufacturing sectors. Many of these select industries maintain profitability because they directly contribute to the war effort.
Given that a large amount of the world’s oil supply originates in the Middle East, conflicts in this region raise concerns about access. This, according to the basic laws of supply and demand, begins to drive the price of oil upward. High oil prices eventually stimulates more investment in oil exploration and drilling, encouraging technological innovation under the pressures of a renewed belief that high prices mean oil is permanently running out.
Defense, Bio-Tech, And Construction
When it comes to choosing stocks during times of war, the defense, biotech, and construction sectors are leading the war effort. Companies like Lockheed Martin (LMT), Northrop Grumman (NOC), and Raytheon (RTN) are making sizable contributions to the U.S. war machine, and are the most profitable during times of conflict. With wars engulfing many areas of the world with increasing violence, there is no question that investors should consider investing a larger share of their stock profile to the defense sector.
There are a few hard asset investments that have historically proven that they can continue to perform well, even during times of conflict and war. Perhaps more importantly they can preserve wealth. Since the global financial crisis in 2008-2009, three alternative investments have emerged as profitable opportunities; these are investing in shipping containers, gold, and fine wine.
Approximately 90 percent of the world’s trade is moved in cargo containers by the global container shipping industry. This constant international demand has proven to deliver steady returns to shipping container investors, even during times of war and political upheaval. Their intermodel shipping applications and widespread adoption make them indispensable to companies and countries.
Although certainly not as popular an investment as it once was, gold has historically been a store of wealth. For centuries, investing in gold has been the go-to investment strategy in turbulent times. With that being said, gold appears to have lost its glitter since the global financial crisis in 2008-2009, and has had difficulty gaining traction since then.
For some investors, collectibles – like investing in fine wine – provide a tangible asset that can be converted back to cash relatively easily. The liquidity and return of these investments depend greatly upon demand and thus do carry an elevated level of risk to investors. Nevertheless, tangibility of this class of assets has steadily risen in popularity.
During times of war and conflict, investing becomes very challenging. Political uncertainty leads to economic uncertainty, and vise versa. Making low-risk investments in this environment is difficult, and takes education and experience to navigate the rough financial waters.