Iran war is breaking your portfolio: here are 5 ways to fix it

The US-Iran conflict has entered its 14th day on Friday, March 13th, and with no clear end in sight, the investors have started hunting for hedges to recover their losses.

Currently, no strategy seems to be working as stocks are falling, bonds have weakened, and with the dollar, oil, and gold all pulled into the same geopolitical shock, investors are looking for new ways to protect their capital.

In such a scenario, Wall Street's traditional 60/40 playbook looked far less reliable than usual, and investors are looking for a way out of a war-driven mix of inflation, volatility, and policy uncertainty.

But, analysts across the board are providing investors with their analysis, and here's how you can create a safety net in times of crisis.

1. Buy downside protection

One of the clearest shifts has been toward put options and other forms of portfolio insurance. The shift is particularly interesting because broad diversification has not offered much cover this month.

The sentiment was echoed by Goldman Sachs, which said that it had “slightly reduced net equity beta through a combination of non-linear equity downside protection, credit hedges, and deployment of dry powder in our tail risk hedging strategies."

The investment bank said that the goal is to create “downside convexity and asymmetric protection” while still preserving some upside.

Other analysts took a similar approach, cutting equity exposure to a neutral stance and adding hedges through put options on both stocks and corporate bonds to protect portfolios from further market declines.

This matters because it is not a normal risk-off episode.

The government bonds, which usually cushion stock losses, have been moving in the same direction as equities, so paying for explicit insurance looks less expensive than pretending diversification alone will do the job.

2. Hold more dollars and cash

One more trend emerging from the US-Iran war is the strong comeback of the dollar.

Pictet Asset Management said its portfolios had “increased their weighting in the US dollar,” arguing that the currency’s “function as a safe harbour should come to the fore.”

The analysts also predicted that the dollar has room to appreciate if the conflict drags on.

Since the beginning of the conflict, the dollar has strengthened even as stocks fell and bond yields climbed, a mix that underlines how unusual this market has become.

Holding more dollars gives investors both a defensive asset and dry powder in case prices reset lower across equities or credit.

3. Own the commodities linked to Hormuz

If this conflict has a market nerve center, it is the Strait of Hormuz.

Goldman Sachs warned that “a temporary surge in oil prices to $100 per barrel could slow global growth by 0.4 percentage points.”

Macquarie strategist Vikas Dwivedi said oil could climb to around $150 a barrel if the crisis drags on, warning that any disruption to logistics could trigger a domino effect across energy markets.

That is why some investors are looking not just at crude, but at a wider basket tied to the same disruption channel.

The edible oils and aluminum also strengthened as the conflict-fueled supply worries and inflation fears across commodities.

4. Keep gold as a core hedge

Gold has not moved in a straight line this month, but it remains one of the market’s preferred shelters.

As per a Bank of America survey, 50% of respondents saw gold as the best hedge, even after a huge run in the metal over the past year.

While gold prices have turned volatile with the intensity of war, the data shows it still remains one of the top preferred hedges against the broader uncertainity.

There is a simple reason gold still matters even when the dollar is firm.

Bloomberg strategist Skylar Montgomery Koning argued in early March that while the dollar can be the main safe haven, gold has the edge when investors start worrying that an energy shock will feed inflation.

5. Pick stocks carefully, not blindly

The final lesson from this market is that not every “war trade” works once everyone piles in.

The analysts warned that “by the time most investors have caught on, the gains in those sectors have largely been priced in."

In other words, buying defense or energy at any price is not a strategy on its own.

Still, selective buying can make sense after sharp dislocations.

Eddie Ghabour, chief executive of Advis Wealth, said the selloff created “a prime opportunity for investors to reposition.”