The Stock Market Has Me Rattled. These 3 Reasons Prevent Me From Trading Emotionally

The stock market took a dive as soon as Donald Trump started a war with Iran. Oil prices have spiked: domestically and even worse, abroad.

To be clear, the loss of life in Trump's war with Iran is heartbreaking. But as it pertains to the purpose of this post, I'm going to hone in on the current stock market turbulence.

The short-term risk to our financial markets is significant. Without any capitulation in sight, the thought of the war spilling over into a long-lasting, full-scale regional conflict has me concerned about the effects on our portfolios and the real economy.

You open your retirement account and see it all tanking. Gains undone by a senseless war. It's tough to look at.

That feeling we get deep in our stomachs, that's loss aversion, a cognitive bias in behavioral economics where the psychological pain of losing is roughly twice as intense as the pleasure of gaining, causing people to prioritize avoiding losses over acquiring equivalent gains.

It's one of many biases that tug and pull at me when I see the news. So I have to remember these three simple reasons to help me avoid trading irrationally.

Why Not to Trade Now: History

The first thing I remind myself is that markets have lived through war before. In fact, history shows that wars often create short-term volatility but rarely derail long-term market growth.

One historical analysis of U.S. market performance during major conflicts found that stocks were significantly higher a decade after the start of conflicts like the Korean War, Vietnam War, Gulf War, and Iraq War. The pattern is surprisingly consistent: markets wobble when uncertainty spikes, but over time, businesses adapt, economies adjust, and markets recover.

The same pattern shows up in more recent data. Looking at global conflicts since 1979, the S&P 500 has often performed better one year after the outbreak of conflict than many investors expect. After events such as the Iran hostage crisis, the invasion of Kuwait, Russia's annexation of Crimea, and the start of the Gaza war in 2023, markets experienced short-term volatility but were often higher twelve months later.

That does not mean every conflict produces gains, but it reinforces a powerful lesson: reacting emotionally to geopolitical headlines has historically been a poor investing strategy. When fear spikes, it often feels like the world is ending. Markets, however, tend to keep moving forward.

Why Not to Trade Now: Research

According to a review of client accounts discussed by investment manager James O'Shaughnessy, Fidelity once examined which investors had achieved the best returns. The top-performing accounts often belonged to investors who had forgotten they even had an account, or to account owners who had passed away.

The lesson is not that investors should literally ignore their finances, but that excessive activity often hurts performance. Behavioral biases lead many people to buy high when markets feel exciting and sell low when fear takes over.

Why Not to Trade Now: My Time Horizon

For investors who will not need their money for 15 years or more, short-term market headlines should carry very little weight in their decision-making.

Markets move up and down every year due to wars, elections, interest rate changes, and economic scares. Still, long-term investors are buying decades of economic growth, not reacting to weekly news cycles. What matters far more is building an asset allocation that matches when the money will be needed and the investor's personal tolerance for risk.

Stocks generally offer higher long-term growth but come with volatility, while bonds and cash provide stability when money will be needed sooner. When a portfolio is aligned with both time horizon and risk tolerance, short-term turbulence becomes noise rather than a signal to act.

Who to Trust

Before trading, talk to the right advisor after careful vetting, rather than simply choosing someone who markets themselves well. Evaluate a planner's credentials, services offered, fiduciary responsibility, and typical client base to ensure their expertise aligns with your financial needs and goals. Read my past post for details: "How to Choose a Financial Planner."

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