Financial Experts Urge Patience as Markets Drop Due to Iran War

Investment professionals are advising Delaware residents to remain calm as stock markets experience significant volatility due to ongoing conflict in Iran. The S&P 500 is heading toward its fifth consecutive week of losses, with oil prices soaring due to disrupted shipping through the Strait of Hormuz.

NEW YORK (AP) — With financial markets experiencing dramatic volatility lately, many investors feel compelled to take action to safeguard their retirement funds. However, historical data suggests that maintaining composure has typically yielded the best outcomes.

America’s stock market has consistently bounced back from every significant decline it has experienced. Whether facing global financial crises, trade disputes, or military conflicts, the S&P 500 has always managed to recover its losses and reach new highs. While this recovery process can span several years, investors who pulled their 401(k) funds from stocks often missed out on subsequent rebounds and additional profits.

Could this pattern repeat itself? Nobody can guarantee it, and certain factors make this situation unique. However, many investment professionals and market analysts continue to offer their standard recommendation: Provided it’s money you won’t need in the near future — which shouldn’t be invested in stocks anyway — try to remain patient and weather the market’s volatility, difficult as that may be.

This same guidance was offered following President Donald Trump’s announcement of worldwide tariffs on “Liberation Day” last year, during the inflation surge of 2021, and when COVID devastated the global economy in 2020. Enduring these types of market shocks represents the cost of accessing the larger returns that equities can provide over extended periods.

The conflict in Iran has disrupted global oil distribution and created severe market volatility.

The hostilities have stopped most shipping through the Strait of Hormuz, a narrow channel near Iran’s coastline where approximately 20% of the world’s oil typically passes daily. This disruption has pushed oil prices to occasional peaks of $119 per barrel, climbing from around $70 before the conflict began.

Should the war persist through the end of June, analysts at Macquarie predict oil could reach $200 per barrel. The all-time record stands slightly above $147, achieved during summer 2008.

Extended periods of elevated oil prices would create consequences extending well beyond increased costs at gas stations. Companies relying on trucks, ships, or aircraft for product transportation might be forced to increase their prices. Additionally, electricity generated by gas-powered facilities would become more costly.

The S&P 500 appears headed for its fifth consecutive week of declines, marking its longest losing streak in almost four years. The index has returned to approximately its August levels and sits nearly 8% below its record high established earlier this year.

The Nasdaq composite, which emphasizes technology companies, has already fallen more than 10% from its peak. This magnitude of decline is significant enough that investment professionals have designated it a “correction.”

Beyond the extent of the market’s decline, the erratic nature of these movements has also caused concern. American stock markets fluctuated dramatically throughout the past week as expectations about a potential war resolution rose and fell.

While the U.S. stock market doesn’t frequently exhibit this exact behavior, it has a consistent pattern of experiencing steep losses before recovering.

The S&P 500 typically sees declines of at least 10% every year or two. Experts often view these corrections as necessary adjustments that prevent excessive optimism from driving stock prices to unsustainable levels.

“I believe getting a correction is not a bad thing,” said Ann Miletti, head of equity investments at Allspring Global Investments. “In some ways, I feel like that is what keeps the market from having a bigger issue.”

“It keeps all of us honest,” she said.

Liquidating your stocks or shifting your 401(k) investments from equities to bonds might reduce the likelihood of experiencing major losses. However, exiting the market would also require determining the optimal time to re-enter, unless you’re prepared to forfeit any future recovery and gains.

Accurately timing market movements is consistently challenging. Some of the strongest trading days in U.S. stock market history have occurred during downturns.

While some recoveries require more time than others, experts typically recommend avoiding stock investments with money you cannot afford to lose for several years, potentially up to a decade. Emergency reserves for expenses like home repairs or medical costs should not be placed in stocks.

Smartphone applications have made trading more accessible and affordable than ever before. This development has attracted a new generation of investors who may lack experience with such dramatic market fluctuations.

The positive aspect is that younger investors often benefit from having time on their side. With decades remaining before retirement, they can weather market turbulence and allow their stock portfolios to potentially recover while benefiting from compound growth. For these investors, price drops might represent stocks becoming available at discounted rates.

Older investors have less time available for their investments to rebound.

Retirees might consider reducing spending and withdrawals following sharp market declines, since larger withdrawals eliminate future compounding potential. Even in retirement, some individuals will require their investments to sustain them for 30 years or longer.

If alternatives don’t exist, circumstances may force difficult decisions. However, selling 401(k) stocks and withdrawing cash creates dual negative impacts. First, you may face taxes plus a potential 10% early withdrawal penalty. Second, withdrawals eliminate any possibility for those investments to recover losses and grow over time.

401(k) loans may be available in certain situations, but these options carry their own complexities and potential penalties.

You can largely ignore these concerns if you have defined-benefit pensions, though few American workers still receive them. These pensions guarantee specific payments regardless of stock market performance.

During stock declines, Treasury bonds and gold prices often increase as investors seek safer investments. This explains why many advisors recommend maintaining diversified portfolios to help cushion market shocks.

However, this time Treasury prices have suffered due to concerns about elevated oil prices and inflation. Consequently, the 10-year Treasury yield has risen above 4.40%, up from just 3.97% before the war started.

Gold prices have also struggled despite their reputation as a safe haven during uncertain periods. This occurs because bonds offering higher interest rates make gold, which provides no returns to investors, appear less attractive by comparison.

No one knows, and don’t let anyone tell you otherwise.