How the conflict in Iran and the Middle East could affect your investments

Why a regional conflict is affecting the global economy

As the conflict continues it may have an increasing impact on the countries around the Middle East. The region holds huge importance to global trade and the world economy given its richness in oil and gas. Another important export through the impacted region is a third of the world’s supply of urea – a key fertiliser ingredient farmers depend on.

Rising prices cause concerns

When supplies of oil, gas and fertiliser are threatened, it becomes more expensive to drive vehicles, fly in planes, heat homes and buy food. And, because oil and gas are used to make so many things, such as plastics, cosmetics and some medicines, it increases the price of these too. 
 
The rate at which prices go up is known as inflation, which you notice when you can buy less and less with your money. 
 
Stock markets typically fall when prices are expected to rise. This is partly because most companies rely on customers buying goods and services. If inflation rises, customers can’t afford to buy as many things or use as many services – or might not be able to afford them at all. 
 
Companies expected to sell fewer goods or services are less valuable, and their share price can then fall – especially if lots of investors sell their shares.

What this means for you

When this happens to enough companies listed on a stock market, the value of the whole market falls.  
 
This could mean lower or even negative investment returns and a fall in the value of your investments, such as your pension savings. Sharp falls in markets (as well as sharp gains) are often referred to as market volatility. 

What to do during periods of market volatility

Take a long-term view

Although periods of conflict can see the value of your investments fall, short-term ups and downs are common when investing. 
 
So, while it’s normal to be concerned when the value of your investments falls, it’s worth looking at the longer-term picture.  
 
History shows that, over longer periods (generally more than 10 years), markets recover from downturns. For example, after the world faced higher inflation and falling share prices following Russia’s invasion of Ukraine, markets did recover. In fact, before the start of the most recent conflict in the Middle East, many global stock markets were performing strongly. 
 
Of course, past performance isn’t a guide to future performance. The value of all investments can go down as well as up, and you could get back less than you paid in.  
 
But, if you can stay invested during periods of volatility and take a long-term view, for example if retirement is still some way off for you, you’re likely to see the value of your investments increase over time despite short-term dips.

Don’t make hasty decisions

It may be tempting to move out of falling investments. However, this risks not only locking in losses but also potentially missing out on any recovery in the value of those investments.  
 
And while you might feel like taking a break from regular contributions to your pension or ISA when markets are falling, continuing those contributions is also generally a good idea. This is because market downturns provide the opportunity to buy investments at a cheaper price today, offering the chance to benefit from any increases they experience in the future.

Check if your investments are diversified

Periods of market volatility highlight the importance of spreading your money across different types of investments and geographical locations – known as diversification. 
 
Diversification can help reduce the amount of risk you take and potentially smooth out the returns you get on your investments. In turn, this can help to lessen the impact of market volatility.   
 
For example, share prices may be falling currently, but the value of other types of investments, such as commodities, has increased. Commodities include things like gold (which often increases in price as people buy it for its perceived security), as well as oil.
 
If you’re invested in one of our Governed Range options – a Governed Portfolio, a Governed Retirement Income Portfolio, your workplace pension default option or another lifestyle strategy – your investments will already be diversified.