North Korea and Your Investment Strategy

Should investors sell due to the tensions with North Korea? The short answer is, “Probably not.”

The longer answer has to do with the broader global and military context surrounding the recent well-publicized shouting match between North Korean dictator Kim Jong Un and President Donald Trump. While the latest headlines can make people nervous–and while we should certainly not blithely disregard the serious consequences of a miscalculation on either side–many experts do not believe that the fierce rhetoric of the two leaders indicates an imminent nuclear conflagration.

First, according to the Washington Post and other sources, the US military does not appear to be taking any of the preparatory steps that would normally precede a decisive military incursion. No US Navy carrier groups are being ordered to positions near North Korea, for example. Further, the US State Department has taken no measures to evacuate personnel from South Korea, which would almost certainly be on the “first targets” list for any strike ordered by Pyongyang. So, while the tough talk between the two heads of state may be unsettling and probably not conducive to productive discussions between the nations, it does not seem that it is time to head for the bomb shelters just yet.

Meanwhile, the US financial markets continue to bump against new highs. The economy continues its steady–if not spectacular–growth, and most companies continue to report earnings at least somewhat higher than they had forecast.

“But,” someone might say, “isn’t that all the more reason to pull back out of the market? Shouldn’t we take some profits and wait to see how things play out between Washington and Pyongyang?”

Here again, the best answer is “probably not.” Trying to time the market has been proven, by study after study, to be the very best way to miss important upside swings in value. Is it possible that hostile rhetoric or perceived threats could cause some panic selling? Yes, but many analysts would regard these as buying opportunities. There have been many serious world events that have pulled the markets down–9/11 being perhaps the most serious recent example. But even in that case, those who stayed in the market through the subsequent steep drop and slow recovery still achieved strong gains.

If you are feeling particularly vulnerable due to equity exposure in the current climate, by all means, speak to your financial advisor. Depending on your situation, it is possible that some portfolio rebalancing and restructuring could be helpful. But selling due only to ominous headlines is not a financial strategy; it is an emotional response to a perceived threat–in this case, one that has not yet materialized. Such emotionally driven decisions hardly ever bode well for your long-term financial well being.

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