How Investors Can Successfully Weather Market Downturns
- 052925
- 6 minutes
Knowledge is power, as the saying goes. To that end, we hope this quick reference will help you power up when the market turns down. So, gird your loins and get filled with the knowledge you need to face the future with courage and calm. Let’s say, bring on the rain.
Before a Market Downturn
Diversification. While it won’t eliminate potential losses, diversification can help to buffer the impact of a bearish market. Spreading risk across different asset classes, sectors, and geographic regions allows better-performing investments to offset losses from poorer-performing ones. Since downturns are unlikely to affect every asset class and every market sector in every country simultaneously, a diversified portfolio can be expected to enjoy some insulation from sudden market changes.
References:
- 6 Ways to Prepare for a Market Crash - Investopedia
- How to Navigate Market Declines and Tariff-Driven Volatility: Smart Investment Strategies - Key Financial Group, LLC
- How to Protect Retirement Money From Market Volatility - Investopedia
- How to Handle Market Volatility | U.S. Bank
- Investing Strategies for Market Crashes - Investopedia
Have a financial plan in place. A good wealth management plan will consider the investor’s goals and risk tolerance, both financially and emotionally. Developing an investment strategy before a market downturn can also help us fight the inevitable urge to move money in and out of the market in reaction to volatility. And while there’s nothing wrong with making changes to the plan, those changes should always align with long- term investment goals.
References:
- How to Handle Market Volatility | U.S. Bank
- 3 strategies to keep your money safe amid market volatility - cnbc
- Will the Stock Market Crash in 2025? 6 Risk Factors | Investing | U.S. News
During a Downturn: Pitfalls to Avoid
Emotionally-driven investment decisions. While we can’t control market movements, we can control our reactions to them. Psychological research shows that people fear losses more than they enjoy gains, which means we’re prone to irrational decisions when we’re in the throes of market volatility. When considering financial changes, it may be helpful to pause for 24 hours before making any long-term decisions. If it still feels like a sound decision, follow through then; but if not, we may have saved ourselves from a costly emotional misstep.
References:
- How to Navigate Market Declines and Tariff-Driven Volatility: Smart Investment Strategies - Key Financial Group, LLC
- 7 Tips on How to Survive in a Bear Market - ML
- 3 Financial Planning And Investment Opportunities In A Down Market - Forbes
- Coping with Financial Market Anxiety | Psychology Today
- How to Stay Calm When Markets Make You Uneasy | Acorns
Succumbing to anxiety. Market downturns can be a legitimate source of stress, but we can take steps to protect ourselves from feeling overwhelmed by anxiety. Studies show that frequent portfolio checking can distort perceptions of long-term trends; many experts suggest just once a quarter is appropriate. Remember that market dips are inevitable but temporary, and history shows cycles of downturns followed by rebounds. Stay focused on your long-term goal and the strategies already in place to help you achieve it.
References:
- How to Navigate Market Declines and Tariff-Driven Volatility: Smart Investment Strategies - Key Financial Group, LLC
- 7 Tips on How to Survive in a Bear Market - ML
- Coping with Financial Market Anxiety | Psychology Today
- How to Stay Calm When Markets Make You Uneasy | Acorns
Overexposure to news. As investors, we rightfully want to stay aware of what’s happening in the markets. But consuming too much negative news can begin to distort our thinking. When facing uncertainty, it’s a natural human response to seek more information. We may feel compelled to continually check news sources during periods of volatility, but this only leads to more stress rather than finding solutions. Bear in mind, too, that misinformation and sensationalism thrive in uncertain times. Sticking to news summaries from trusted sources and being deliberate about the amount of time we spend ingesting news can help us stay level-headed and avoid making irrational decisions.
References:
- Coping with Financial Market Anxiety | Psychology Today
- How to Stay Calm When Markets Make You Uneasy | Acorns
- How Should You Invest When the Markets Are Volatile? - ML
During a Downturn: Wise Investing
Look for investment opportunities. It may feel counterintuitive, but a market crash might be an ideal time to allocate more assets here rather than pull away. Of course, this is highly dependent on each investor’s situation and risk tolerance, so a discussion with a trusted advisor would be prudent. That said, a correction historically follows downturns. Employing a strategy like dollar-cost averaging can be an effective way to benefit from market downturns without getting into the risky business of attempting to time the market.
References:
- 3 Financial Planning And Investment Opportunities In A Down Market - Forbes
- Investing Strategies for Market Crashes - Investopedia
- 7 Tips on How to Survive in a Bear Market - ML
- 3 strategies to keep your money safe amid market volatility - cnbc
Tax planning. Although portfolio losses aren’t exactly desirable, they do create some opportunities to optimize taxes. While not necessarily advisable for all situations, converting IRAs or qualified retirement plans to Roth accounts while their values are lower may be worth considering. Tax-loss harvesting may also be beneficial as a way to offset taxable capital gains; again, each investor’s unique situation dictates whether this strategy is advisable.
References:
- 6 Ways to Prepare for a Market Crash - Investopedia
- 6 Financial Moves to Make When the Market Goes Down | Kiplinger
- 3 Financial Planning And Investment Opportunities In A Down Market - Forbes
Strategies for Young Investors
Increase stock investments. A market downturn may be a great opportunity to rebalance your portfolio to allocate more toward stocks. Buying when the market is down can take advantage of future market rebounds– and young investors have the luxury of time to wait out the rough patches.
References:
- 6 Financial Moves to Make When the Market Goes Down | Kiplinger
- 3 Financial Planning And Investment Opportunities In A Down Market - Forbes
- Investing Strategies for Market Crashes - Investopedia
- 7 Tips on How to Survive in a Bear Market - ML
- 3 strategies to keep your money safe amid market volatility - cnbc
Don’t try to time the market. It can be tempting to try, but even the most experienced investors can’t predict market movements. Missing just a few of the best market days can have a significant impact on your portfolio. Instead of trying to predict short-term fluctuations, focus on developing a solid long-term investment plan and maximizing your opportunity to benefit from patience and perseverance.
References:
- Will the Stock Market Crash in 2025? 6 Risk Factors | Investing | U.S. News
- How to Navigate Market Declines and Tariff-Driven Volatility: Smart Investment Strategies - Key Financial Group, LLC
Strategies for Retirees and Near-Retirees
Review allocations regularly. As we approach and enter retirement age, the risk our portfolios carry should be adjusted accordingly. In general, the closer we are to withdrawals, the more stable we want our assets to be. Regularly evaluating and rebalancing with the help of a knowledgeable financial advisor can help to protect us from the worst of market downturns.
References:
- How to protect your money during economic turmoil, stock market volatility - Yahoo Finance
- 6 Financial Moves to Make When the Market Goes Down | Kiplinger
- 7 Tips on How to Survive in a Bear Market - ML
- How to Protect Retirement Money From Market Volatility - Investopedia
Have cash on hand. Keeping enough assets liquid in something like a high-yield savings account or money market fund can help protect against sequence-of-returns risk. This occurs when withdrawing during a down market, which requires taking a higher percentage from your portfolio to fund everyday expenses. Experts suggest having cash equivalents that can fund anywhere from three to 12 months of daily expenses, but each investor’s situation should be taken into account.
References:
- How to Protect Retirement Money From Market Volatility - Investopedia
- 3 strategies to keep your money safe amid market volatility - cnbc
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