Market downturns are a natural part of investing. Although they can feel unsettling, having the right strategy in place can help you remain focused and even identify new opportunities. Over the decades of working with our clients, we have compiled several smart approaches to help manage volatility and stay on track.
Know Your Risk Tolerance
Check Your comfort level. If recent swings have you stressed, it may be time to reassess.
Realign with Your Goals
Adjust your portfolio to reflect your current risk profile and timeline.
Diversify and Defend
Spread risk across assets. Stocks, bonds, real estate, and commodities can balance one another, so look for investments that are not correlated with each other. Focus on defensive sectors; healthcare, utilities, and consumer staples tend to remain more stable during downturns compared to cyclical or discretionary sectors.
Stay Liquid
Keep cash ready. A solid reserve gives you flexibility and protects against forced selling.
Avoid Overleverage
Limit debt to maintain control of your investment decisions. Stick to the plan but stay adaptive.
Use Dollar-Cost Averaging
Keep investing regularly to reduce the emotional impact of volatility.
Avoid Panic Selling
Reacting emotionally often leads to locking in losses. It’s easy to assume the worst-case scenario is most likely—but history shows that’s rarely true.
Monitor and Adjust
Rebalance periodically. Ensure your allocation stays aligned with your long-term plan.
Use Stop-Loss Orders Wisely
These can help minimize downside risk on specific holdings.
Consider Protective Tools
Explore hedging options. Advanced investors may use strategies like options or market-neutral investments, but adding too many hedges after a downturn can limit your ability to recover gains. Stay informed and in the right frame of mind.
Truly Focus on your Long-Term Goals
Even though things may seem unsettling at times, do not jeopardize your future by making pain go away at the present. While the present may feel overwhelmingly negative, history shows that markets tend to recover over the long term.
Unexpected events can drive markets down, but unexpected positives can lift them back up. Bear markets can be challenging, but discipline, diversification, and a long-term mindset can help you weather the storm. Working with a financial advisor can also keep your plan aligned with your goals, regardless of market conditions.
