A recent video by Professor Robert Pape suggests we may be headed towards WWIII 😬
The greatest financial danger may not be nuclear war itself. It could be the economic consequences of a prolonged conventional conflict involving the United States, China, Russia, and their allies.
These include:
- A 30% to 60% stock market decline.
- Disruption of semiconductor manufacturing in Taiwan.
- Energy shortages and inflation.
- Rising government debt and potentially higher interest rates.
- Cyberattacks affecting banking and financial infrastructure.
- Restrictions on international trade and capital movements.
These are stress-test scenarios, not predictions.
1. Three possible scenarios
| Scenario | Economic consequences | Investment strategy |
|---|---|---|
| Regional wars escalate | Energy inflation, market volatility | Energy, defense, gold |
| Major conventional world war | Trade disruption, shortages, recession | Gold, Treasuries, energy, essential businesses |
| Nuclear confrontation | Severe financial and infrastructure disruption | Physical necessities, accessible liquidity, geographic diversification |
The second scenario is the most useful one for investment planning.
A nuclear exchange could make normal portfolio optimization largely irrelevant, at least temporarily.
A conventional world war would leave financial markets functioning to some degree, although with enormous disruption.
2. Proposed wartime portfolio
| Investment | Allocation | Example |
|---|---|---|
| US technology and growth | 25% | MSFT, GOOGL, NVDA, AMZN |
| Defense and aerospace | 15% | LMT, RTX, NOC, GD |
| Energy | 15% | XOM, CVX, XLE |
| Gold | 10% | GLD, IAU |
| Short-term US Treasuries | 15% | SGOV, BIL |
| Broad US equities | 10% | VTI |
| International equities | 5% | VXUS |
| Critical infrastructure and utilities | 5% | XLU, PAVE |
| Total | 100% |
This is an illustrative wartime-resilience allocation, not a recommendation to immediately replace your existing portfolio.
J.P. Morgan’s April 2026 analysis similarly emphasizes combining investments that benefit from geopolitical fragmentation with defensive assets and diversification. J.P. Morgan Private Bank
3. The five investments to prioritize
A. Defense companies: 15%
| Company | Ticker | Investment thesis |
|---|---|---|
| Lockheed Martin | LMT | Aircraft, missiles, defense systems |
| RTX | RTX | Missile defense, radar, aerospace |
| Northrop Grumman | NOC | Strategic deterrence, aerospace |
| General Dynamics | GD | Submarines, naval systems |
RTX and General Dynamics are favored for exposure to defense procurement.
However, wartime demand does not guarantee superior stock returns. Valuations, production constraints, and government pricing all matter.
B. Energy: 15%
Energy security becomes critical during a major conflict.
- ExxonMobil (XOM)
- Chevron (CVX)
- Energy Select Sector SPDR Fund (XLE)
C. Gold: 10%
Gold provides some protection against currency instability and declining confidence in governments.
IAU or GLD favored for most of the allocation.
Physical gold could provide additional protection against financial-system disruption, although storage and security introduce costs.
Importantly, gold does not always rise during war. It can decline when investors need liquidity or interest rates rise. That happened during the 2026 Iran conflict.
D. Short-term Treasuries: 15%
This may be the most important defensive component.
Short-term Treasury bills offer:
- Liquidity.
- Limited interest-rate sensitivity.
- A reserve for purchasing stocks after major declines.
Maturities of 3 to 12 months favored rather than long-term Treasury bonds.
Long-term bonds could perform poorly if wartime spending drives inflation and borrowing costs higher.
E. Technology: 25%
Retain substantial technology exposure, but reduce concentration.
Greatest concern: Exposure to semiconductor supply chains and Taiwan.
A Chinese blockade or invasion of Taiwan could disrupt advanced chip production and severely affect NVIDIA, Apple, and other technology companies.
I would favor Microsoft and Alphabet over additional semiconductor concentration for this particular risk scenario.
The International Monetary Fund’s October 2026 financial stability report specifically identifies leverage, concentrated exposures, and cyber threats as risks that could amplify market disruptions. International Monetary Fund
5. What if World War III never happens?
This is the most important consideration.
A portfolio designed exclusively for war could significantly underperform if geopolitical tensions ease.
Consider two hypothetical outcomes:
| Portfolio | Major war | No major war |
|---|---|---|
| Aggressive technology portfolio | Potentially severe losses | Strong growth potential |
| Defensive wartime portfolio | Potentially smaller losses | Moderate growth potential |
| All cash | Preserves nominal value | Inflation and opportunity costs |
| All gold | Highly unpredictable | No earnings or dividends |
The figures would depend heavily on the particular conflict, inflation, and government responses.
The IMF’s October 2026 outlook forecasts global growth of 3.1% in 2026 and 3.4% in 2027, while warning that conflict escalation remains a significant downside risk. International Monetary Fund
Preference would be to preserve enough growth exposure to benefit if war never occurs.
6. My preferred strategy for your portfolio
Given your circumstances, I would make four changes:
First: Reduce your dependence on NVIDIA and other companies vulnerable to disruption in Taiwan.
Second: Increase your combined allocation to defense, energy, and gold to approximately 30% to 40%.
Third: Establish a 10% to 15% short-term Treasury reserve.
Fourth: Eliminate margin debt when the tax consequences justify doing so.
Implement these changes gradually rather than attempt to predict when a war might begin.
NB: Written with AI assistance.
