The Iran war has rattled global markets, lifted oil prices and reignited inflation concerns, but the damage to diversified investment portfolios has remained relatively limited so far, according to Goldman Sachs.
In a note on portfolio strategy, Goldman Sachs Research pointed out that while equities have declined and bond yields have spiked since the conflict began, losses to traditional balanced portfolios have been “relatively small” compared with past major drawdowns. The firm attributed the resilience to still-strong growth expectations, less pressure on longer-dated bond yields, and the absence of a full-blown macro deterioration.
“We’ve been surprised by how resilient equities have been in the face of both the energy and the rate shock. The big concern now is that the rate shock eventually weighs on growth expectations.
There is going to be some lasting damage, and our economists have downgraded their growth and upgraded their inflation forecasts pretty much around the world. But the growth pricing has been remarkably resilient across assets as well as within equities, and by extension, equities have also been resilient,” said the brokerage.
According to Goldman Sachs, its “world portfolio proxy” — a broad representation of roughly $300 trillion in global financial assets — has declined only about 5% since the start of the war, a relatively modest drawdown compared with previous stress episodes. This, it indicated, shows that diversified portfolios have not yet suffered the kind of deep breakdown many feared.
At the centre of that resilience is the traditional 60/40 framework, which has held up better than expected despite the dual shock of falling stocks and rising yields. However, Goldman Sachs emphasised that the bigger takeaway is not blind reliance on the old model, but the need to rethink portfolio construction.
Why markets have not cracked yet
Goldman Sachs highlighted that one of the most surprising aspects of the current US-Iran war has been the resilience of equities despite a clear energy shock and a sharp move in rates.
It was observed that the biggest moves outside commodities have been in bond markets, particularly in shorter-dated yields. However, longer-term yields have not repriced as aggressively as during the 2022 inflation shock or 1970s-style stagflation, limiting broader market damage.
The firm also pointed out that markets entered the year with a strong macro backdrop, which helped cushion the impact. Growth expectations remained robust, and recession risks were not aggressively repriced even as tensions escalated. It further noted that investors have been cautious about repositioning too aggressively, given the risk of sharp reversals following policy shifts. As a result, sentiment has softened, but markets have not turned outright bearish.
This, Goldman Sachs suggested, explains why the current phase resembles a sharp adjustment rather than a full breakdown.
Despite ongoing volatility, Goldman Sachs maintained a constructive medium-term outlook.
The brokerage expects markets to eventually recover, provided the global economy avoids recession, inflation remains contained, and policy easing continues. Under such conditions, growth expectations could stabilise and balanced portfolios may regain lost ground.
Portfolios need rebalancing
According to the brokerage, its machine-learning based asset allocation model points to a relatively low probability of sustained negative returns for 60/40 portfolios over the next 12 months, supported by steady growth and manageable inflation.
However, Goldman Sachs cautioned that near-term risks remain elevated. The key concern is that the current rate shock could evolve into a growth shock, as tighter financial conditions begin to weigh on economic activity.
If that scenario plays out, the resilience seen so far may not hold.
The bigger message: portfolios need rebalancing
Goldman Sachs further stressed that the more important takeaway from the Iran war is not short-term resilience, but structural imbalance in portfolios.
After more than a decade of innovation-driven returns, portfolios are now heavily tilted towards growth assets and underexposed to inflation protection and defensive strategies.
The firm argued that this imbalance is becoming more visible as markets adjust to a world where inflation, volatility and geopolitical risks can return more frequently.
It added that while some inflation-sensitive assets have already repriced, there are still opportunities to improve portfolio resilience without exiting risk assets entirely.
What investors should do now?
Rather than relying solely on the traditional stock-bond mix, Goldman Sachs recommended a broader three-bucket approach: innovation, inflation protection and risk mitigation.
Its framework suggests allocating roughly one-third to each category, balancing exposure to technology and AI with inflation hedges and defensive assets.
Within equities, the firm favours infrastructure and real cash flow businesses, along with “HALO” assets — heavy assets with low obsolescence — which are better positioned in a volatile environment.
It also highlighted inflation-linked bonds, quality and low-volatility equities, selective safe-haven currencies and alternatives as key portfolio components.
Gold, Goldman Sachs noted, has also corrected recently due to higher short-term rates, but still retains a role as a medium-term hedge against inflation and currency risks.
According to the brokerage, the idea is to get the balance right across those categories so it’s not necessarily dependent on just the traditional asset class splits like 60/40.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
