What financial advisers say to do as the Iran war rattles investments : NPR

With the U.S. and Israel launching attacks on Iran, oil prices have increased, while stock markets have moved in the opposite direction due to concerns about the conflict’s future impact on the economy.

The Dow Jones Industrial Average has decreased by roughly 9% since its February peak, occurring about two weeks before the onset of the war. This decline is not severe enough to be termed a crash or a bear market, which typically involves a 20% drop from recent highs. Nonetheless, the downturn has affected the value of American investment funds, including college and retirement accounts.

If this situation leaves you feeling as uneasy as the markets, financial advisers suggest it depends on your timeline for needing access to your funds.

A decade or more from needing to withdraw: Hands off

For those who are at least 10 years away from needing their funds, the advice is straightforward: Do not make any changes to your accounts.

Historically, markets have shown resilience to global disruptions, often rebounding within months or a few years. U.S. stocks have risen since the COVID pandemic, Russia’s incursion into Ukraine, and the imposition of the “Liberation Day” tariffs.

“You really don’t want to shoot yourself in the foot having a rash reaction, or an immediate emotional reaction, to stock prices going down 4 or 5% in a week and a half,” says Steven Elwell, chief investment officer and co-owner of Level Financial Advisors.

While a prolonged weak stock market is possible, financial advisers view the current dip as a chance for long-term investors to purchase stocks at lower prices.

Elwell also cautions that market conditions could deteriorate before improving, requiring investors to remain steadfast.

“It’s very easy to say ‘Buy low and sell high,’ but when the moment to buy low shows up, it means something scary is going on,” Elwell said.

Within a few years of retirement: Rebalance toward safer options

If retirement or college fund withdrawals are a few years away, advisers believe the current market fluctuations will likely be resolved by the time you need the funds.

However, it’s important to prepare for future geopolitical events that could disrupt the market when you need cash.

One effective strategy is diversification. While younger investors might focus on stocks, as you approach withdrawal time, it’s wise to shift some investments into more stable assets, such as U.S. Treasury bonds.

Many retirement funds automatically adjust investments, known as target date funds, which are designed for people retiring in a specific year. As retirement approaches, these funds gradually move investments from stocks to bonds.

This approach is also common in college investment accounts like 529 plans, which are aligned with a specific high school graduation year. According to Morningstar, more than 80% of these plans follow this model.

Another diversification method is to invest in both U.S. and international funds. This not only spreads risk but also allows participation in international markets, which might perform well when U.S. stocks do not.

Last year, international funds outpaced the S&P 500, sometimes by nearly 50%. However, since the start of the conflict with Iran, some overseas funds have underperformed compared to U.S. funds.

For long-term investors, advisers suggest considering international market investments at reduced prices. “The past year-and-a-half is a good reminder of the benefits of diversifying internationally,” says Michael Budzinski, a portfolio manager at Morningstar.

Need the money now: Be as rational as Spock

If you need access to funds now and haven’t prepared, the situation might be daunting.

Selling stocks in a volatile market can be unsettling, but there are ways to minimize losses, according to Kevin Khang, head of Vanguard’s global economic research team.

If you have multiple funds or accounts, consider withdrawing from the one performing best, or at least not as poorly as others. This way, you still incur losses, but they are minimized.

Avoid withdrawing from the worst-performing funds, as this locks in larger losses. “Then you are not giving that holding [time] to grow back when the conflict fades into the memory and volatility comes down,” Khang said.

Overall, try to withdraw only what is necessary, leaving as much investment intact as possible for recovery when the market stabilizes.

Christopher Holtby, co-founder of Wealth Advisors Trust Company, advises thinking like Star Trek‘s Spock. “Mr. Spock would be telling you to do things that are extremely rational and might be painful: either to cut your expenses, delay your retirement,” Holtby says. “Because what he’s also thinking is you don’t want to be selling when everyone else is selling.”