Protecting your portfolio against terrorism

Twenty-two people were killed and more than a hundred suffered injuries in a blast at the Manchester Arena on Monday. This attack, claimed by the Islamic State, is the most recent terrorist atrocity, but unfortunately and most probably, not the last one.
The rise of extremism in Middle East has become a real threat for the Western world and not only for citizens, but also for their finances. That’s right, financial markets are usually reacting on terrorist attacks almost immediately, showing how investors feel about future stability.
Taking a deeper look at the Manchester case, we saw global markets staying quite resilient on Tuesday, an attitude that surprised analysts. These attacks boost fear and concern among investors, which ultimately translates into lower exposure to risky assets, promoting demand for safe-havens such as gold, yen or euro.
However, every new attack that hits world markets leaves a visible scar, which outlines a simple model that could be benefiting terrorists. As the natural response to attacks is to move south, terrorists have been speculating on massive sales. After a few weeks, markets recover but terrorist organizations go home with big bucks on their pockets. What about you?
Ok. So… keeping in mind that nobody (among regular people) can actually anticipate a terrorist attack, it’s pretty difficult to determine a precise method to protect your investment against it. Nevertheless, there are a few simple steps that may help you reduce considerably risk exposure under threatening situations.

Be psychologically strong
While nobody can predict the way financial markets react on terrorism, you can decide how to react on it. It’s your own decisions that will make a difference between going down or up, so controlling your emotions is indeed of great importance for success.
Try not to overreact. Don’t jump off the bridge because everybody does it. It’s historically proven that after attacks, markets recover to even higher levels in weeks, may be months.

Always diversify
The fact that world markets sink in the light of terrorist attacks, doesn’t mean all stocks are actually falling. Insurance companies, tourist operators, hotels are some of those negatively affected by attacks, but there is another side to the matter. Airlines, gun manufacturers, cybersecurity ETFs are options that may turn green in the event of a tragedy.