In this era of increasing acts of terrorism, led by ISIS and radical Islamists, is there such a thing as a “terror-proof” portfolio?
Many investors are concerned about the affect that terrorist events and other negative geopolitical developments might have on their investment portfolios.
Although I understand those concerns, history suggests there’s no reason for investors to be overly worried about potential acts of terrorism or to reposition their portfolios in an effort to protect their investments against the occurrence of any such events. That’s because the occurrence of negative geopolitical events, including acts of terrorism, have, historically, had no lasting impact on the value or direction of securities prices.
For example, the Dow Jones Industrial Average rose by 1.5% following the assassination of President Kennedy on November 22, 1963, as compared to the day before that unforeseen event occurred. Over the ensuing three and 12 months, the Dow appreciated by 7.2% and 19.6%, respectively.
In a similar manner, the Dow Industrials rose by 7.7% and 17.3% over the three months and 12 months, respectively, following the Iranian Hostage Crisis that began on November 4, 1979.
Although the Dow Industrials, and U.S. stock prices in general, declined considerably following the September 11, 2001 terrorist attacks on the World Trade Center, several other factors weighed down stocks during the months following those attacks.
Specifically, the U.S. economy was in the midst of an economic recession that began during March 2001 and numerous acts of corporate malfeasance were reported by large, publicly-traded companies, including Enron, Arthur Andersen and WorldCom.
And, even though stocks trended lower during that period, the Dow Industrials declined by only 3.8% over the 12 months following the Sept. 11, 2001 terrorist attacks.
As you can ascertain by reviewing the table below, stocks also rose much more often than they declined following numerous other negative geopolitical events over the past 76 years. Specifically, the Dow Jones Industrial Average rose 69% of the time over the 12 months following the negative geopolitical events outlined in the table below.
So, I encourage you to stop worrying about the impact that acts of terrorism might have on your investment portfolios, and instead to focus on significant economic developments when deciding how to best position your portfolio allocations.
With my research indicating that the United States’ pace of economic growth will slow and that stock prices, in general, will trend lower over the next few months, I’m advising my firm’s clients to allocate a large portion of their financial market assets to cash-like investments (i.e. money market securities) and to a few, relatively high-paying dividend securities.
For information on other safe, yet high-yielding, fixed-income securities, I encourage you to try my Free Weekly Market Commentary. Click here to subscribe to that weekly report.
Until next time,
David Frazier is President and Chief Market Strategist of Frazier & Mayer Research, LLC, an independent investment research firm that offers customized research and analytical services to registered investment advisors, hedge funds and high net-worth individual investors. You can check out his latest insights at: www.investorsmonitor.com.