Can Iran War Impact Retirement?

Most investors ask the wrong question once a crisis hits, and that question alone can oftentimes cost them more than the crisis itself. Military conflict with Iran has spiked market volatility and left many investors flooding financial media sites to find out what they should do next. Within a brief time, this question started spreading everywhere:

"What should I do with my portfolio?"

I want to challenge that question today because I think it's the wrong question. And the right question might change how you think about investing and how you're thinking about retirement. Let's get into it.

The Problem with "What Should I Do Now?"

As a financial advisor, I see this all the time. Something significant happens and markets react immediately. People start to wonder and panic and think, "What's going to happen next?" And many investors—even thoughtful, experienced investors—can feel this pull or this urge to just do something.

Let's move some money. Let's go to cash. Let's change up our portfolio mix. Let me go online and see what the financial gurus are saying that we should be doing.

Now, I get it. That instinct comes from a genuinely good place. You've worked too hard to just let the markets get rattled and watch your money evaporate overnight. But here is the problem: reacting to headlines is not a strategy. It's emotion. And emotionally driven investment decisions have, historically speaking, been one of the single biggest destroyers of wealth.

Not the crash itself. Not the geopolitical event. The reaction to it.

The Concept of Permanent Possibilities

Today I want to talk to you about this concept called "permanent possibilities." Here's the idea in one sentence: The events that rattle markets—recessions, wars, geopolitical strife, inflation spikes, black swan events—are always possible.

They rarely just appear out of nowhere. They were possible yesterday. They'll be possible tomorrow. And once you as an investor begin to internalize this, you stop asking the question, "What do I do now?" and you start asking yourself a more powerful question: "Was I prepared for this?"

Understanding What's Always Possible

•       There's always the possibility of military conflict somewhere in the world. We've seen it with Ukraine, we've seen it in the Middle East. That risk never fully disappears.

•       There's always the possibility of trade disputes between major economies. We've seen currency manipulations. We've seen tariffs come and go, and now we see tariffs coming back again.

•       There's always the possibility of inflation coming in higher than expected, or a disappointing jobs report, or softening economic data.

•       There's always the possibility of a recession or possibly a surge in economic growth.

•       Political shifts, regulatory changes—this stuff is always on the horizon as a possibility. It never changes.

If you're waiting for certainty before you invest, then you're waiting for something that's never going to come.

So What Can You Actually Do?

If uncertainty never goes away, what is the next possible move? If you can't predict the next crisis—and I would challenge anyone who actually thinks that they can—what can you actually do?

This is where this video gets practical. So stick with me.

One of the biggest misconceptions with investing is that the best investors can always see the next crisis coming. They predicted the 2008 crisis, or they predicted COVID. They somehow knew exactly when to get out and get back in.

The truth? Most professional investors didn't, and the ones that did didn't get lucky twice. The real challenge with trying to time markets is you've got to be right two times, which is incredibly difficult to do. History shows us that there are very, very few people, if any, that can do that consistently.

Preparation Over Prediction

So instead of prediction, I want you to focus on something that I believe is far more durable, and that is preparation and positioning.

Preparation means building a portfolio that doesn't need a specific future to have the potential for impactful growth over the long run.

Positioning means aligning your entire balance sheet with your core values and your long-term financial goals.

Economic expansion and contraction is going to happen. Rising interest rates, falling interest rates—going to happen. Market volatility to the upside and the downside is going to happen. If you live long enough, you're going to experience multiple cycles of all of these things. So we need to be prepared and positioned for that to happen.

The Coastal Home Analogy

Think about this: If you were going to build a beautiful home on the coast, you wouldn't build that home thinking that you were never going to experience a coastal storm. You build it knowing that there would be storms. You focus on the blueprint. You want to make sure that the foundation and the structure of the home is built and is sound so that when the storms come, you know that home is going to be resilient.

You don't have to run around wondering what you're going to do. You've already prepared.

How This Applies to Different Life Stages

Now, here's where this matters for people who may be watching this channel.

Younger Investors (35-40 Years Old)

If you are a younger investor and markets were to drop by 30%, that's going to be uncomfortable, but you are in a much different position than someone who is in their fifties or sixties. You ought to consider a decline in market prices of that magnitude to be a buying opportunity, and history tells us that the long-term compounding growth from that opportunity gives you time to recover. You should make the most of that opportunity when you can.

Pre-Retirees and Recent Retirees (Late 50s to Mid-60s)

However, the math changes considerably the closer you're getting to your retirement years. Someone in their late fifties—say someone who's 58 or 59 years old, or 62, 63, or maybe even mid-sixties—a significant decline in your portfolio value right before you're getting ready to use those assets for retirement income can have a significant impact on your experience in retirement.

That type of drawdown is a much different problem. We refer to that as sequence of return risk, where you may experience a significant downside event to your assets right before you begin to retire.

The Frankenstein Portfolio Problem

One of the things we tell people all the time is that the closer you get to retirement, your portfolio is going to be asked to do a lot of different things:

•       It's going to be asked to provide you with income

•       You're going to want that portfolio to still grow

•       It's going to be asked to protect you from inflation to preserve its purchasing power over time

•       You're going to want stability

•       You're going to want some downside protection

It kind of becomes this Frankenstein monster that you've put together because you're asking it to do multiple things. So there are lots of things that have to be considered, but a portfolio that's built for just one of those things could be a recipe for trouble.

The Critical Question You Need to Ask

I want to ask you something, and you don't have to answer out loud: If your portfolio were to decline by 35% over the next six months, would your plan hold?

Not emotionally, but structurally. Would you still be able to create the income you want? Would your income still be covered, or would you be forced to start selling assets that have declined in value to provide you with those paychecks?

If the answer is "I'm not sure," well, that's actually useful information, and in my opinion, that's worth exploring.

The Framework for the Next Crisis

Here's the framework that I would leave you with: The next time a major event happens and the news media sites are buzzing about what's going on with the market and we're seeing a spike in market volatility, don't ask yourself, "What do I do now?"

Ask yourself this question: "Was my portfolio, was my plan already prepared for this?"

If the Answer Is Yes...

If you've already structured your assets with an appropriate asset allocation, you have an income plan, and you feel that you are completely diversified, then your job is simple: Do nothing. Allow your plan and your preparation to work for you.

If the Answer Is No...

If the answer is no, then that realization should tell you that your portfolio was built with the assumptions that nothing bad would ever happen or that bad things wouldn't actually apply to you. And that, to me, should be a wake-up call for a conversation with an advisor or with your advisor to understand better: How can we get this preparation? How can we get this plan right? Because you know what? I worked too hard to save this money, and I want to be able to sleep at night.

The Goal Isn't Prediction—It's Preparation

Understand this: The goal is never to predict the next crisis. The goal is to be prepared for the next crisis.

After years of working with people and helping couples prepare and plan for their retirement, here is what I have learned about some of the best investors that I know: The best investors are not the ones who have a perfect forecast of what's going to happen.

The best investors are the ones who build a plan and understand that they don't need to have a perfect forecast. They just need to be prepared.

So when the next headline breaks—and it will break—what you want is to trust in your plan, trust in your preparation, and don't go scrambling based on the headlines. Don't panic and don't do anything emotional that could wreck your plan for the next decade.

Trust your plan. Work your plan.

That's not luck. That's preparation.

The Bottom Line

In a world full of permanent possibilities, preparation isn't just a strategy—in my view, it's the only one that consistently works.

If you found this helpful, go ahead and send this video to someone who might be asking themselves the wrong question about their portfolio or what they should be doing right now. And if you want to talk about your own plan or discuss more about whether or not your plan is built for this type of ever-changing world, let's have that conversation. That's a conversation that's always worth having.

As always, thank you for watching. I'll see you in the next one. Investment advisory and financial planning services offered through Advisory Alpha, LLC, a SEC Registered Investment Advisor. Insurance, Consulting and Education services offered through Vertex Capital Advisors. Vertex Capital Advisors is a separate and unaffiliated entity from Advisory Alpha, LLC. All written content on this site is for information purposes only. Opinions expressed herein are solely those of Michael H. Baker, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. This website may provide links to others for the convenience of our users. Michael H. Baker has no control over the accuracy or content of these other websites. Please note: When you access a link to a third-party website you assume total responsibility for your use of linked website. Links and references to other websites and third-party content providers are offered for your convenience. We do not necessarily prepare, monitor, review or update the information provided by third parties. We make no representation or warranty with respect to the completeness, timeliness, suitability, or reliability of the referenced content.