Defense sector has become a huge thing in the past few years, and it’s easy to see why: Russia’s invasion of Ukraine and conflicts in the Middle East have increased the need for weaponry. Not just because they need the guns and ammunition to fight with, but also because other states see that they need to arm themselves for potential conflicts in the future. This article will explain some of the ways that you can invest in the defense sector, but will also explore the non-ethical part and how this investment can indirectly contribute to the rising geopolitical tensions. This is not financial advice.
So let’s just start with the performance. The SPADE Defence index has been rising by 48%, since the start of Russia’s invasion into Ukraine. Companies like RTX and Lockheed Martin have posted revenues of $202 billion and $159 billion, respectively, in the first quarter of 2024. Global military spending has reached a record $2.443 trillion, marking a 6.8% increase from the previous year. All of the projections say that the defense industry will grow even bigger in the upcoming years.
Investing in the defense sector can, technically, be the same as investing in any other sector. You have individual stocks like RTX (RTX Corp.), GE (GE Aerospace), LMT (Lockheed Martin Corp.), BA (The Boeing Company), and GD (General Dynamics Corp). And you also have ETFs and indexes like SPADE, which was mentioned before.
But you know what, let’s step back for a second and think: If the first thought that comes to your mind when hearing about a new conflict is: “How can I make money from this?”, then you might need to take a second look at your moral compass. Honestly, investing in the defense sector is kind of like selling your soul to the devil for some material gain. Confused? Let me explain:
First of all, when you and many others start investing in defense stocks, it signals strong market demand and confidence in that sector, which will encourage the companies to expand their operations and production capabilities. That can potentially lead to an arms race where other countries feel the must to match these capabilities.
Secondly, you are indirectly supporting the wars being fought right now. You support the production of weapons used in the conflicts where humans die en masse. And although it may seem like numbers and letters on the screen, you are literally giving money to a company to make more guns to kill other people.
And you can obviously forget about any positive ESG factors. If we imagine that the US military is a country, then it would rank as the 47th largest emitter between all of the other nations of the world. And that’s just the US. And the societal impact of the sector is really not great either.
So to sum it up, if you invest in the defense sector, you are selling your future for some short-term gains. Even if “Live fast, die young” is your motto, I don’t think that melting from the heat of a nuclear blast would be the way you want to go.
Well, at least that would be the case if all of the big defense corporations were mostly traded by regular mortals like you and me. Of course, the collective effect of many investors coming together and investing in the company makes an impact, but I also believe that these companies would do just fine and would continue doing whatever they want. We are already in an arms race and have been for a long time, so I don’t think that this sector will slow down anytime soon, especially not in a time of increased government spending on the military. And of course, national security is really important and should not be taken lightly.
I hope this article made you think about how your investments can directly and indirectly affect the future of the world and most importantly your future.
– Andris Cipans