Investing: Worst-Case Scenario

Factoring terrorism into your investment decisions isn't unpatriotic. It's prudent

Federal marshals are guarding overseas flights, and state troopers are patrolling trains. What makes you think your portfolio couldn't use some extra security too? Renewed terrorism concerns, punctuated by the Madrid bombings on 3/11, pushed the Dow to its first drop of more than 5% in a year. Still, prevailing wisdom holds that investors should do nothing. Terrorism strikes are unpredictable, the reasoning goes, so you can't invest around them.

Nonsense. Some $100 billion will be spent on homeland security over the next few years with or without any domestic terrorism, and that provides a rich backdrop for certain defense and...

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