How to Invest During Geopolitical Uncertainty

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You’d have to be living under a rock not to know what a hot mess the world is right now.

Perhaps the hot messiest at the moment would be the closing of the Strait of Hormuz after the US attacked Iran, cutting off 20% of the world’s oil supply. Iran is trying to develop nuclear weapons and missiles to carry nuclear payloads. Then, there’s the Russia-Ukraine war now entering its fourth year, with no real prospect of resolution. Some think the current global turmoil provides a great opportunity for China to invade Taiwan. The NATO alliance is weakened, and could even collapse if the US pulls out of the agreement as has been threatened by President Donald Trump.

Given the above, it’s no wonder that the World Economic Forum lists geoeconomic confrontation as the No. 1 risk over the next two years.  In addition to wars, there could be more sanctions, tariffs, investment restrictions, and supply chain controls by countries to achieve geopolitical goals, gain advantages or coerce rivals. So what does all of this mean for your investments? Will stocks plunge and inflation surge?

Our survival instincts lead us to protect our portfolio and go to safety. Gold and bitcoin haven’t exactly been safe havens lately. And bonds could get clobbered if inflation surges, since interest rates will certainly follow. Is cash the only safe haven? In reality, even that isn’t a safe haven since it’s unlikely to keep up with inflation, after taxes.

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Just the Facts, Ma’am

As horrible as all this sounds, let’s look at how equity markets have performed. First, they did not plunge. Even though most of the turmoil is overseas, international stocks gained 32.35% last year as measured by the total return of the Vanguard Total International Stock Index ETF (VXUS). That’s almost twice the 17.1% return of US stocks as measured by the total return of the Vanguard Total US Stock Index ETF (VTI). What has happened so far this year? As of Friday, using the same measures, international stocks gained more than 13% while domestic stocks gained 7.3%. Markets did not plunge.

Have markets been more volatile? Yes, but not by much. The CBOE Volatility Index (VIX) measures the expected future volatility of the S&P 500 over the next 30 days. As of Friday, the fear gauge sat at 17.3, which is just below the average of about 20. Even recent peaks look low compared with 2020 when COVID hit or 2008 with the financial crisis. And Jason Zweig recently wrote in The Wall Street Journal that the S&P 500 has had swings of 1% or more between its intraday high and low fewer times than last year as of April 16.

Bonds also turned in decent performance. The 10-year Treasury rate (controlled by markets rather than the Fed) fell by 0.40 percentage points in 2025 and moved up 0.2 percentage points so far this year.

What Can We Do?

It may be easier said than done, but don’t react to the news. (I tell clients that I don’t know the future and neither does anyone else, and that is the most valuable advice I’m going to give them.) Even knowing the future can backfire. Early last year, Ian Bremmer, president of the Eurasia Group, gave a compelling talk on geopolitical market risk in Europe. Bremmer made several predictions on the dire economic issues Europe would face, and those predictions and more came true. Yet that didn’t translate into investment losses. The Vanguard FTSE Europe ETF (VGK) gained 35.85%, more than doubling the US and besting the rest of the world.

Anyone with a crystal ball who knew COVID was coming in 2020, decimating the economy, would probably have sold most if not all of their equities. Unfortunately, they also would have missed out on a 21.03% gain on US stocks that year. Those who reacted in March of that year locked in up to a 30% loss. Those who did nothing gained that 21% return by the end of that year.

While doing nothing is far better than reacting to the news and related market plunges, I recommend a better way: rules-based investing. Set and follow an investment policy. For example, setting an asset allocation of 60% equities with a six-percentage-point tolerance would have the investor buying more equities in March of 2020 and selling after markets recovered. We all know it’s better to buy low and sell high, but it’s really hard and there are never guarantees that it will always work out. It’s actually quite hard to follow rules:

• For example, I have a policy of having a third of my equities in international stocks.

• After over a decade of underperformance vs. US stocks, it took a lot of discipline to stay the course, but those that did were rewarded in 2025 and, so far, this year.

Good Advice. To answer the question on how to invest during times of geopolitical uncertainty: Invest the same way as during calm political times. Set an asset allocation target for equities and stick with it. Make sure you set it so you think you can stick with it, no matter what. Stocks will always be risky and the current geopolitical uncertainty is just the latest risk. Volatility may increase, which will tug on our emotions. There is no doubt that most of us will get an irresistible urge to do something. The best advice is to resist that urge and stick to the plan.

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