How Do Investors React to Geopolitical Crises? | TU Research

Geopolitical crises can quickly affect stocks, energy prices and safe-haven assets, but retail investors do not always respond by reducing risk. Some sell, others wait, while some see market declines as buying opportunities. This question is especially relevant in 2026, as recent geopolitical shocks have produced unexpected market reactions.

The topic is actively discussed on Reddit. An April 2026 investing post, “I will catch the next dip”, received more than 1,000 upvotes after the author described missing several major market sell-offs, including one triggered by the Iran war. Another investing discussion received more than 470 upvotes as users debated whether investors waiting on the sidelines could help reverse the next major market decline.

Safe havens are also being questioned. A Gold discussion received more than 660 upvotes as users debated why gold was falling during an active conflict. While Reddit discussions are not representative evidence, they highlight the uncertainty investors face over whether to sell, hold or buy during geopolitical crises.

The research aims to answer key questions:

• Do geopolitical crises reduce investor risk-taking?

• Do investors buy or sell after geopolitical market drops?

• Which assets gain during geopolitical uncertainty?

• What matters more: conflict or economic impact?

• Do investors think markets overreact to geopolitical crises?

• What stops investors from buying geopolitical dips?

• Does geopolitical instability change long-term strategies?

Findings

Institutional validation

Institutional research shows that geopolitical crises do not automatically lead investors to abandon risky assets. The impact depends on the severity of the event, its economic consequences and broader financial conditions.

The International Monetary Fund examined this issue in Geopolitical Risks: Implications for Asset Prices and Financial Stability, Chapter 2 of its April 2025 Global Financial Stability Report. The IMF estimates that a typical country-specific geopolitical risk shock reduces aggregate stock prices by about 0.3%, while major events have much larger effects. Firm-level returns decline by around 1 percentage point in the month of a major domestic geopolitical event, and international military conflicts are associated with declines of around 5 percentage points among emerging-market firms. Geopolitical shocks can spread through uncertainty, trade disruptions, supply chains, capital flows, inflation and economic growth.

Gold illustrates why investor responses are not always straightforward. In What does the record price of gold tell us about risk perceptions in financial markets?, the European Central Bank finds that gold has generally performed well during periods of elevated geopolitical risk and severe market stress. Its lack of counterparty default risk also helps explain its traditional safe-haven role.

However, gold does not necessarily react the same way to every crisis. The Bank for International Settlements' 2026 study Chasing El Dorado: gold under shifting geopolitical and financial conditions finds that geopolitical risk tends to increase gold returns, but the effect is stronger when global financial conditions are relatively loose. This suggests that investors' ability to rebalance their portfolios influences how strongly they move into gold during geopolitical stress.

Theoretical research

The impact of geopolitical crises on investor behavior can be understood through risk perception and uncertainty. Investors do not need to wait for a conflict to cause measurable economic damage before changing their portfolios. Expectations of escalation, trade disruption, higher energy prices or inflation can alter perceived risk and influence investment decisions in advance.

Caldara and Iacoviello examined this mechanism in Measuring Geopolitical Risk. The researchers developed a news-based Geopolitical Risk Index that tracks both geopolitical threats and actual events. They found that higher geopolitical risk is associated with lower investment and employment, higher perceived disaster probability and greater downside economic risk.

This helps explain risk-reduction behavior. When geopolitical uncertainty increases, some investors may move toward cash, gold or other defensive assets even before the economic consequences of the crisis become clear.

However, uncertainty can also create the opposite response. If investors believe the initial market decline is larger than the likely economic impact, falling prices can be interpreted as an opportunity rather than a reason to exit. This creates a tension between risk avoidance and contrarian buying: the same geopolitical shock can encourage one investor to reduce exposure while another buys the decline.

The key factor may therefore be not the geopolitical event itself, but how investors interpret its expected financial consequences. This provides the theoretical basis for examining whether retail investors react directly to conflict or wait for evidence of effects on markets, energy prices, inflation and the broader economy.

Survey data

To understand how geopolitical crises influence retail investment decisions, we conducted a proprietary quantitative study examining portfolio behavior, market declines, asset allocation, perceptions of market overreaction and longer-term strategy.

Methodology

The study was conducted using a structured online survey based on the CAWI methodology.

• Sample composition: 1,350 retail investors.

• Coverage: North America, Europe, Asia, Latin America, Africa and the Middle East.

• Age: 18–60 years old.

• Participation criteria: respondents who currently invest or trade financial assets.

• Statistical confidence: 95%.

• Estimated sampling deviation: ±2.7%.

Research team

The study was conducted by our experts:

• Anastasiia Chabaniuk (Author, TU research) – research design and interpretation.

• Chinmay Soni (Fact-checker) – data validation and statistical verification.

• Ciaran Ryan (Editor-in-Chief) – editorial and methodological supervision.

• TU research team (Andrey Mastykin, Oleg Tkachenko) – data collection and analysis.

How do investors react to a major geopolitical escalation?

Respondents were asked what would best describe their investment behavior if a major international military conflict suddenly escalated and financial-market volatility increased.

Insight: Caution is the most common response, but widespread market exit is not. Only 10% would primarily sell investments and increase cash, while almost three times as many would actively search for opportunities.

What do investors do when stocks fall after geopolitical news?

Respondents were presented with a scenario in which a broad stock-market index fell sharply following an unexpected geopolitical escalation.

Response to a geopolitical sell-off:

• Buy more stocks – 33%;

• Hold current positions – 31%;

• Reduce some stock exposure – 13%;

• Sell most or all stock exposure – 6%;

• Wait / not sure – 17%.

Insight:

Buying is more common than selling. 33% would buy more stocks, compared with 19% who would reduce or exit their positions. A geopolitical sell-off therefore represents an opportunity for a larger share of investors than a signal to leave the market.

Which asset would investors increase during a geopolitical crisis?

Respondents were asked which asset they would be most likely to increase if geopolitical risk rose substantially.

Insight: Gold remains the most popular individual choice, but fewer than three in ten investors select it. The results therefore suggest diversification of crisis responses rather than a universal flight toward one safe-haven asset. Only 7% select Bitcoin or other cryptocurrencies, indicating that crypto remains considerably less established than gold as a perceived geopolitical safe haven.

What actually makes investors change their portfolio during a geopolitical crisis?

Rather than asking whether war itself worries investors, respondents were asked which development would be most likely to cause an actual investment change.

Main triggers for changing investments:

• Sharp increase in oil and energy prices – 24%;

• Conflict spreading to additional countries – 22%;

• Major stock-market decline – 19%;

• Higher inflation/interest-rate expectations – 14%;

• Disruption to global trade or shipping – 9%;

• Government sanctions – 6%;

• Outbreak of conflict itself – 4%;

• Other / unsure – 2%.

Insight:

Only 4% identify the outbreak of conflict itself as the main trigger for changing their investments. Retail investors appear substantially more responsive to the economic and financial consequences of geopolitical crises. Energy prices are the largest individual trigger at 24%, followed by further international escalation at 22%.

Do investors believe markets overreact to geopolitical crises?

Respondents were asked how financial markets usually respond when a major geopolitical crisis begins.

Insight: The most common view is that markets initially overreact. 38% believe early sell-offs tend to exaggerate the eventual financial impact, compared with 19% who believe markets typically underestimate geopolitical risks. This perception helps explain why 33% would buy stocks following a geopolitically driven decline.

What would make investors stop buying the geopolitical dip?

Respondents who were open to buying market declines were asked which development would be most likely to make them reconsider.

Reasons to avoid buying a geopolitical dip:

• Conflict spreads to additional countries – 27%;

• Clear evidence of a global recession – 23%;

• Sustained surge in oil and energy prices – 17%;

• Stock market falls more than 20% – 13%;

• Significant increase in interest rates – 9%;

• Failure of major financial institutions – 7%;

• Nothing / would continue investing – 4%.

Insight:

The size of the market decline itself is not the main limit for most dip buyers. Only 13% identify a fall exceeding 20% as the primary reason they would stop buying, while 27% point to international escalation and 23% to evidence of a global recession.

Has geopolitical instability changed investors' long-term strategy?

Finally, respondents were asked whether geopolitical instability had caused them to make a longer-term change to their investment approach.

Insight: 39% say geopolitical instability has not changed their long-term strategy. However, 54% report making one of the three listed strategic adjustments, most commonly by increasing diversification.

Practical implications for investors

Geopolitical crises can move markets before their economic consequences are clear. Instead of trying to predict political or military outcomes, investors can focus on how events affect prices, inflation, interest rates and market risk.

• Identify the transmission channel. Consider whether the crisis affects oil, trade, inflation, yields or corporate earnings rather than assuming that war automatically benefits or hurts a particular asset.

• Avoid trading headlines alone. Check whether related markets such as oil, bonds, currencies, gold and volatility confirm the initial reaction.

• Check what is already priced in. Markets may react to expectations before an event reaches mainstream news, making late entries particularly risky.

• Reduce position size during high uncertainty. Geopolitical events can cause sudden gaps that may bypass stop-loss levels.

• Define your invalidation point. Base exits on market conditions rather than simply waiting for the geopolitical situation to end.

• Be cautious with leverage. Unexpected escalation can produce large overnight moves and forced liquidations.

• Do not assume safe havens will rise immediately. Gold, bonds and currencies can react differently depending on inflation, rates and liquidity.

• Reassess as the crisis develops. Initial moves may reflect fear, while later pricing can depend more on energy costs, inflation, earnings and economic growth.

Since 33% of surveyed investors say they would buy more stocks after a geopolitically driven market decline, access to stock markets can also influence how easily investors can act on such opportunities. The table below compares stock brokers by trading costs, account requirements and access to stocks and other asset classes.

Data sources and methodology

• International Monetary Fund. Geopolitical Risks: Implications for Asset Prices and Financial Stability, Global Financial Stability Report, Chapter 2, April 2025. Analysis of geopolitical risk shocks, stock prices, sovereign risk, cross-border transmission and financial stability.

• International Monetary Fund. Global Financial Stability Report: Enhancing Resilience amid Uncertainty, April 2025.

• European Central Bank. What does the record price of gold tell us about risk perceptions in financial markets?, Financial Stability Review, May 2025. Analysis of gold during episodes of financial, geopolitical and policy uncertainty.

• Bank for International Settlements. Chasing El Dorado: gold under shifting geopolitical and financial conditions, BIS Working Paper No. 1380, October 2026. Monthly analysis covering 1990–2026 of the relationship between geopolitical risk, financial conditions and gold returns.

• Caldara, D. & Iacoviello, M. Measuring Geopolitical Risk, American Economic Review, 112(4), 2022, 1194–1225. DOI: 10.1257/aer.20191823.

• Reddit, r/investing. I will catch the next dip, April 2026. Retail discussion of successive market declines and buying opportunities.

• Reddit, r/investing. Regarding the “waiting for a big dip to get back into the market” folks, July 2026. Discussion of investor capital waiting for a larger market correction.

• Traders Union. How Geopolitics Impacts The Stock Market And Investor Strategy.

• IdSurvey. CAWI Methodology.

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Team that worked on the article

Anastasiia Chabaniuk

Educational Content Editor

Anastasiia has 17 years of experience in finance and content marketing. She believes that the support of information and expert opinion is very important for the success of investors and new traders.

Learn about our editorial policies

Ciaran Ryan

Editor at Traders Union

Ciaran Ryan is a veteran financial journalist based in South Africa, where he covers cryptocurrency, mining, stock markets, and governance for Moneyweb. He also hosts the weekly Moneyweb Crypto Podcast.

Chinmay Soni

Head of Fact-Checking Department

Chinmay Soni is a financial analyst with more than 5 years of experience in working with stocks, Forex, derivatives, and other assets. As a founder of a boutique research firm and an active researcher, he covers various industries and fields, providing insights backed by statistical data.