Investing During Wartime: A Historical Guide

Investing during wartime feels wrong. Every instinct tells you to run to safety. But seven decades of data tell a different story: investors who stay the course during armed conflicts consistently outperform those who sell. The average market drawdown at conflict onset is approximately 15%, and the average recovery takes 14 months. Understanding this history is critical for making rational decisions with your portfolio today.

How Did the Stock Market Perform During Past Wars?

Conflict	Start	Max Drawdown	Recovery (Days)	1-Year Return
WWII (Pearl Harbor)	Dec 1941	-20%	307	+15%
Korean War	Jun 1950	-12%	182	+28%
Vietnam Escalation	Aug 1964	-10%	120	+10%
Gulf War	Aug 1990	-17%	189	+33%
Iraq/Afghanistan	Sep 2001	-49%*	1,400*	-16%*
Russia-Ukraine	Feb 2022	-13%	240	+7%

*Iraq/Afghanistan coincided with the dot-com crash, making the drawdown and recovery unusually severe. The war itself was not the primary driver -- the tech bubble bursting was. Excluding this outlier, the average war drawdown is -14% with a recovery of about 200 days.

Use our savings calculator to model how consistent investing through downturns compounds over time.

Which Sectors Outperform During Wartime?

Sectors that tend to rise:

• Defense/aerospace: Military spending increases regardless of party in power. Lockheed Martin, Raytheon, and Northrop Grumman consistently outperform during conflicts.
• Energy: Oil and gas companies benefit from higher commodity prices. The energy sector returned 65% in 2022 while the broader market fell.
• Commodities: Gold (traditional safe haven), oil, natural gas, and agricultural commodities all see price spikes.
• Cybersecurity: Modern warfare drives massive government and corporate cybersecurity spending.
• Healthcare: Inelastic demand. People need medical care regardless of geopolitics.

Sectors that tend to decline:

• Airlines/travel: Higher fuel costs plus reduced demand. Airlines dropped 30-60% after 9/11.
• Consumer discretionary: Consumers cut back on non-essentials when budgets are squeezed by energy costs.
• Retail: Tariff-driven cost increases and supply chain disruptions compress margins.
• Real estate: Higher interest rates (the Fed's response to war-driven inflation) directly reduce home buying and commercial activity.

The Case for Staying Invested

Consider two investors with $100,000 in the S&P 500 at the start of Russia-Ukraine (February 2022): Investor A stayed invested through the decline to $87,000, watched the recovery, and reached $125,000+ by late 2023. Investor B panicked, sold at $87,000, waited 6 months for "clarity," reinvested at $105,000, and ended at roughly $103,000. That is a $22,000+ gap -- 22% of the original investment -- created entirely by the decision to sell.

The pattern repeats in every conflict. The market's worst days and best days cluster together. Missing the 10 best trading days over a 20-year period cuts your returns nearly in half. Those best days almost always occur during the recovery from sharp declines.

Should You Keep Investing During Wartime?

Continue regular contributions. If you invest $500/month and the market drops 20%, your $500 buys 25% more shares than it did before the drop. Over a 12-month downturn and recovery cycle, consistent contributors typically end up 5-10% ahead of where they would be in a flat market, because they bought extra shares at discounted prices. Model long-term growth with our compound interest calculator.

What Changes Should You Actually Make?

• Rebalance if off-target: If stocks dropped and you are now 50/50 instead of your target 70/30, rebalancing means buying stocks at a discount.
• Add inflation protection: TIPS, I Bonds, and a small commodities allocation (5-10%) hedge against war-driven inflation.
• Review concentration risk: If one sector is 30%+ of your portfolio, trim regardless of market conditions.
• Tax-loss harvest: Sell losing positions in taxable accounts to lock in deductions, then immediately reinvest in a similar (not identical) fund. You keep market exposure while capturing a tax benefit.
• Do NOT sell your 401(k) to cash: Historically, this is the single most destructive decision individual investors make during crises.

For more on protecting your retirement accounts during geopolitical uncertainty, see our guide to your 401(k) during wartime.

The Bottom Line

The data from six decades of conflicts is clear: stay invested, keep contributing, and rebalance when needed. Panic selling has cost investors trillions of dollars across every major conflict. Run retirement projections at our 401(k) calculator, model compound growth at our compound interest calculator, and build a savings plan with our savings calculator.