What Should You Do When the Market Drops?

Short answer: don’t panic! Here’s why…

Drops in the stock market can lead to a lot of questions and concerns about what investors should do. Most investors know that markets do sometimes fall, but that doesn’t make it easier to stomach the drops when they occur.

While market downturns can be unnerving, we believe the best way to navigate a choppy market is to have a good long-term plan and a well-diversified portfolio.

When there is any amount of turbulence in stock prices, the urge to do something—anything— can be overwhelming.

Stay Invested

Our experience has shown us that selling, or changing your investment plan, is not always the most appropriate response to market turmoil. While it may be tempting to pull out of the stock market, investors may miss out on a potential market rebound and opportunity for gains while they are on the sidelines.

Here are some of our tips for dealing with market downturns:
  • Know where you stand. Evaluate your portfolio to see if you are making progress on your long-term investment goals. Keep in mind that stocks and bonds perform differently from year to year. Living with market volatility is a lot easier when you have a firm investment strategy in place.
  • Think before you sell. If you are losing sleep over the drop in value of your portfolio during market pullbacks, you may need to review your risk tolerance.
  • Our Approach. We believe a healthy approach is to generally stick with a diversified mix of stocks and bonds and invest for the long term. To help calm nerves caused by short-term fluctuations, we believe it is best to focus on long-term trends and invest in various types of investments to help spread your risk. Most importantly, we think a disciplined investment process takes the emotional element out of investing. In our view, that can lead to a better outcome than merely following the crowd and selling indiscriminately in turbulent markets.

Of course, diversification and asset allocation do not guarantee a profit or protect against a loss. All investments involve risks, including possible loss of principal.