5 Ways Terrorism Affects Your Portfolio

Terrorist attacks like the one in Brussels leave too much in their wake -- fatalities and injuries, destruction, fear among the populace and many unanswered questions.

But one thing they rarely seem to leave anymore is a lasting effect on stocks.

While any terrorist attack might evoke memories of the double-digit losses in the Standard & Poor's 500 index just days after the 9/11 attacks, the reality is, with a few small exceptions, Wall Street tends to shrug off this type of global headline.

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The Dow Jones industrial average was off only 0.2 percent on news of the Brussels attacks that killed 34 and injured more than 200, while the S&P 500 dropped 0.1 percent. And the Nasdaq composite actually showed an increase, bumping up nearly 0.3 percent.

"Most terror attacks -- and particularly those on foreign soil -- have only a passing effect on the markets," says Charles Sizemore, a portfolio manager on Covestor and chief investment officer at Sizemore Capital Management, a registered investment advisor in Dallas. "Most U.S. investors are barely aware that anything happened, and economic effects here tend to be negligible.

"While terrorism is devastating to the people that experience it firsthand, it's exceptionally rare for an attack to have a big enough impact on investor sentiment or economic activity to really change a market's trend," he says.

Individual investors can't really do much about single-day pops -- most algorithms will already have you beat to the punch. But a couple of longer-lasting plays can be set up, and at the very least, knowing ahead of time what you might expect to happen to your holdings following a terrorist attack can help you avoid panic moves in response.

Gold is a safe haven. The first asset that comes to mind is that tried and (mostly) true safe haven, gold. When the world becomes more uncertain, investors often pull some money out of seemingly less secure paper investments and into the relative trustworthiness of the yellow metal.

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Historically, gold prices have moved up amid global unrest. For instance, gold spiked nearly 10 percent in the weeks following Sept. 11 attacks in the U.S., including a 6 percent one-day move for bullion immediately after the attacks.

The aftermath of 2015's Paris attacks saw gold get a bump -- albeit a smaller and shorter-lived one.

Bonds offer security. Criticize the national debt all you want, but when it comes to a financial security blanket, U.S. Treasury bonds are as warm and fuzzy as they come.

Bonds have a tendency to spike, however briefly, after many major forms of domestic and global unrest. Along with gold, the 9/11 attacks also sent Treasury bonds much higher, with the yield on the shortest debt (one month) plummeting by nearly 20 percent.

We saw another big move in bonds amid Russia's increased aggression with Ukraine in 2014, and it wasn't just U.S. Treasurys -- British and German 10-year bonds also hit the skids, with the latter touching historically low yields at the time.

Expect travel stocks to take a hit. Terrorist attacks -- especially ones that occur on the international stage -- can make U.S. travelers second-guess their travel plans, and that can have a ripple effect through a number of industries.

U.S. airline stocks famously plunged following the 2001 attacks on American soil, with major airline stocks dropping 40 percent in a matter of days. They also fell a few percentage points following the Paris attacks in November of last year, as well as after the disappearance of Malaysia Airlines Flight 17. The most prominent stocks in this space are American Airlines Group (ticker: AAL), United Continental Holdings (UAL), Delta Air Lines (DAL), Southwest Airlines Co. (LUV) and JetBlue Airways Corp. (JBLU).

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Other stocks that are most vulnerable include online travel booking sites such as Expedia (EXPE) and Priceline Group (PCLN), as well as cruise line stocks such as Royal Caribbean Cruises (RCL) and Carnival Corp. (CCL).

As any dips would be short-term in nature, so investors looking to diversify their portfolio to include travel stocks could have a window to take a position here.

Get defensive with defense stocks. Tom Taulli, founder of OptionExercise.com and editor of the IPO Playbook at Investorplace.com, says the assumption following a terror attack is that there will be "much more spending on defense/counterterrorism, and on a long-term basis, this may mean more demand for defense contractors."

And indeed, defense stocks such as Lockheed Martin Corp. (LMT) and Northrop Grumman Corp. (NOC) saw big spikes after 9/11, the Charlie Hebdo massacre in January 2015 and the Paris attacks.

But those returns failed to build much more after the initial knee-jerk reaction. And in the case of the Brussels attacks, they hardly materialized at all.

"The response to a terrorist event seems mostly reflexive and temporary as the event fades from the news," Taulli says.

Gun stocks are worth watching. Louis Navellier, chairman of the Reno, Nevada, investment firm Navellier & Associates, told CNBC in 2015 that President Barack Obama is "the best gun salesman on the planet." That came in the telling of his strategy to buy gun stocks like Sturm, Ruger & Co. (RGR) and Smith & Wesson Holding Corp. (SWHC) following the Paris attacks.

Both stocks also spiked after the shootings last year in San Bernardino, California, and as Obama announced measures to curb gun violence.

Naturally, though, spikes in gun stocks tend to be a reaction that mostly only sparks from gun-related incidents, such as the mass shootings (and any anti-gun rhetoric or action in the aftermath) in Aurora, Colorado, and Newtown, Connecticut.