Iran War - Portfolio implications

The situation in Iran is a human tragedy, and it is unsettling to see the constant flow of negative headlines involving war, energy disruption, inflation and the humanitarian fallout. This note is to add some investment market context for Distinct clients. ​

What is happening and why markets are reacting? 
The conflict began in late February between the US, Israel and Iran, with direct strikes and retaliation by both sides.  This has disrupted global energy and shipping markets, particularly through the Strait of Hormuz, which is a key route for global oil and gas supply.  As this route accounts for such a large portion of the global supply of these two key commodities, prices have increased considerably.  This has led to concerns that inflation will rise once more, which could force Central Banks to increase interest rates.   

Investment markets are forward-looking, so prices have adjusted quickly.  The table below outlines how the MSCI World Equity Index[1] (a proxy for global stock markets), and a medium risk portfolio with 60% in global equities (developed and emerging) and 40% in bonds has performed since the War started a month ago. It also includes performance data for longer periods out to three years.

Source: MoneyMate – performance is inclusive of dividends and as at 27th March 2026

An investor with 100% of their portfolio invested in global stock markets has suffered a fall in value of c. -5% since the War started.  If we go back six months, that same investor is broadly flat, and over the last twelve months the investor would have earned a positive return of c. +7%.  A medium risk investor has suffered a drop in value of c. -1% since the war started and should be in a positive position for the year to date. 

Is this normal? 
While a fall of 5% is never a welcome event, it is a normal occurrence for equity markets.  If we look at the S&P 500 index, from 1928 to 2025, on average the index fell by 5%, 3.4 times a year.  Over that period, it has grown in value by over 10% a year on average. 

In more recent times, the situation has been similar. Over the last 45 years the S&P 500 index grew by 10.7% per annum despite intra year drops of -14.2%.  The graph below shows the annual return the S&P 500 Index earned each year from January 1980 to 27 February 2026 (grey bar) and the largest fall in value during each year (red dot).

​For example, the index finished 2020 (Covid) up 16%, despite suffering a fall of -34% during the year.  An investor who stayed invested for the full year in 2020 secured a return of 16%, while an investor who derisked after the fall in value may have earned a negative return.  A key take away from the above data is that volatility is normal for investors, it is the ‘cost of admission’ for securing higher returns over the long term.   
 
How does the financial plan factor into this? 
While wars such as the one unfolding in Iran are always disturbing, it is important to remember that when we work with our clients to build their financial plan, we review their short to medium term cash requirements, so you are not forced to sell at the wrong point in a market cycle.  We also build diversified portfolios across assets and sectors and rebalance them on an ongoing basis to give our clients the best chance of achieving their own distinct set of objectives.  This should help our clients to have the discipline to stay invested when markets turn volatile. 
 
​What is the best course of action? 
Lastly, it is important to remember that global equity markets have continued an upward climb even in the face of economic, pandemic and political disruptions. This is not to trivialise the destruction wars bring and their impact on the world, but history suggests, for long-term investors, the best bet is usually to stay the course. 

[1] The MSCI World Index captures large and mid cap equities across 23 Developed Markets countries*. With 1,319 stock constituents, the index covers approximately 85% of the free float-adjusted stock market capitalisation in each country and is often used as a proxy for global stock markets.