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Seeing the market dip can be scary, worrying, and frustrating. It’s normal to feel uneasy when you see your portfolio lose value. However, market downturns aren’t uncommon. They’re a normal part of investing. It may be tempting to react quickly, but steady, thoughtful decisions are important during these times.
Below, we’ll discuss clear strategies for keeping you grounded, preparing for market fluctuations, and working toward your financial goals.
Understanding Market Downturns and Investor Psychology
It’s easy to worry when the market drops. Before jumping into strategies, it’s important to understand what a market downturn is and how emotions impact investing decisions. Seeing the bigger picture will help you make smarter choices and focus on your long-term goals.
What is a Market Decline or Bear Market?
A market decline typically means a short-term dip in stock prices. A bear market is a deeper drop, usually a fall of 20% or more from recent highs.1 Bear markets occur more often than you think. Historically, they happen about every 6-7 years and last a few months, not forever.2 They’re a regular part of the market cycle, not a sign that investing is broken.
Why Emotional Investing Can Hurt Long-Term Returns
It’s understandable to feel like you should act when the market drops. However, selling during a downturn often locks in your losses instead of giving your investments time to recover. Research shows that investors who stay in the market tend to earn higher returns over time than those who try to jump in and out.3 As financial experts say, “it’s time in the market, not timing in the market,” that matters. Stay calm and avoid knee-jerk reactions–think of the big picture.4
Staying Focused on the Bigger Picture
Market drops feel big when you’re living through them. However, when looking at history, recoveries typically last a lot longer and go much higher than downturns. That’s why you need to stay focused on your long-term plans instead of daily headlines. Your investment timeline, regardless of whether it’s 5, 10, or 20 years, matters more than what happens in a single month or year. Trust your plan and remember why you started investing in the first place.
Smart Investing Strategies During a Downturn
Instead of trying to guess what’s coming, focus on strategies that keep you consistent and ready for whatever happens next.
Don’t Try to Time the Market
Trying to guess the perfect moment to buy or sell usually doesn’t end well. Even professional investors rarely get it right. You often miss the best recovery days when you pull your money out and wait for the “right” time to jump back in. A better approach may be to stay invested and keep adding money on a regular schedule.
Make Dollar-Cost Averaging Your Ally
Dollar-cost averaging means investing a small amount of money at regular intervals, no matter what the market is doing. Some months you buy at higher prices, and other months you buy at lower ones. Over time, this helps lower your average cost per share. Even more importantly, it removes emotion from the process. You’re not trying to guess; you’re sticking to a plan. This steady habit may help during uncertain times.
5Build or Replenish Your Emergency Fund
If you don’t already have an emergency fund, now’s a good time to start one. Aim to save enough to cover 3-6 months of essential expenses, such as rent, groceries, and utilities. Having cash set aside helps you avoid tapping into your investments during a hard time. Keep your emergency fund somewhere safe and easy to access, like a high-yield savings account or money market account. It’s about giving yourself peace of mind when things are uncertain.
Reevaluate (But Don’t Overhaul) Your Strategy
Market downturns are a good time to check in on your investing plan, but don’t throw it out completely. Look at your portfolio and ask: does it still match my goals and timelines? If it does, stay with it. If it’s not, it may be worth making some adjustments. Just avoid making big changes based on fear. Use this time as a learning opportunity to strengthen your plan, not rebuild it from scratch.
Tactical Opportunities to Consider
Down markets can feel discouraging, but they can also open up opportunities. Thinking long-term and staying patient lets you make moves that set you up for growth in the future. Let’s take a look at some ways to put a downturn to good use.
Harvest Losses in Taxable Accounts
If you have investments in a taxable account that have dropped in value, you might use those losses to your advantage. This strategy is called tax-loss harvesting. Selling investments that have lost money allows you to offset gains from other investments or reduce your taxable income. Just watch out for wash-sale rules, which say you can’t buy the same investment again within 30 days if you want the loss to count. When used carefully, tax-loss harvesting can help lower your tax bill while keeping your long-term plan on track.6
Pros and Cons of Tax Loss Harvesting
Diversify Across Asset Classes
One way to handle market swings is to spread your money across different types of investments, not just stocks. Think about adding bonds, real estate, or other assets to your portfolio. Different investments react differently to market shifts, and diversification can help a lot. You don’t need to predict which one will do best. You just need a mix that keeps your overall plan best suited for your financial needs.7
Look at Defensive Sectors and Dividend Stocks
Some parts of the economy hold up better during tough times. These are called defensive sectors, like utilities, healthcare, and consumer staples. These are things people need regardless of what's happening in the economy. Companies in these sectors often have steady earnings and, in many cases, pay dividends. Dividend-paying stocks also give you regular income, even when stock prices are down.
Increase Exposure to Bonds and Cash Equivalents
Bonds, especially short-term ones, are a good anchor for your portfolio when stocks are falling. They tend to be more stable and provide a dependable stream of income. Also consider cash equivalents like certificates of deposit (CDs), money market funds, or high-yield savings accounts. These options help you keep some stability while waiting for better market conditions.
Use Index Funds and ETFs for Low Cost Exposure
Keeping your investing simple and affordable becomes even more important when the market is down. Index funds and ETFs (exchange-traded funds) help with that. They give you broad exposure to many companies without the higher costs of picking individual stocks. Plus, some ETFs focus on specific sectors, which is a wise way to target areas that might recover faster or stay steadier through rough patches.
Adapting to Your Time Horizon and Risk Tolerance
Everyone has a different journey when it comes to investing. How you should react depends on how soon you’ll need your money and how comfortable you are with ups and downs along the way. Let’s break it down based on your goals and timelines.
Long-Term Investors: Stay the Course and Keep Contributing
If you’re investing for something 10 years or more away, such as retirement, the best move is usually to stay consistent. Keep making regular contributions even when the market is rocky. Over time, those investments can benefit from compounding and market recoveries. It’s hard to watch values dip in the short run, but history shows that staying invested often pays off over time.
Mid-Term Investors: Strike a Balance
If your goals are 5 to 10 years away, reviewing your investments and striking a balance is wise. You still need growth, but you also want to limit risk as you get closer to needing the money. This may mean adjusting your mix to include more bonds or stable investments while keeping a healthy portion in stocks. Regularly checking your portfolio helps you stay on track without making hasty, emotional changes.
Short-Term Investors: Focus on Preserving Capital
If you’ll need the money within the next few years, protecting what you have becomes more important than chasing big gains. You may want to consider focusing on more stable and easily accessible investments, like short-term bonds, CDs, or money market funds. Liquidity matters when you have a short timeline. The goal is to avoid risky bets that could leave you short when you need the funds.
Investment Strategy by Time Horizon
What NOT To Do When the Market is Down
Market downturns can bring out a lot of emotions. It’s easy to feel like you have to act quickly, but reacting without a plan often leads to bigger problems. Here are a few common mistakes to avoid to keep your strategy strong during tough times.
Don’t Panic-Sell or Abandon Your Plan
Selling when the market is down might feel like you’re protecting your money, but it usually locks in losses that could have been temporary. History shows that investors who stay invested tend to recover over time. For example, after the 2008 financial crisis, markets bounced back strongly within a few years. Sticking to your plan, even when it’s uncomfortable, helps you stay in the game for the long-term growth you’re aiming for.
8Don’t Obsess Over Daily Account Values
Checking your portfolio every day during a downturn can make you feel worse and tempt you to make decisions you might regret. Markets naturally go up and down in the short term. Instead of focusing on daily changes, set a schedule for reviewing your investments, like once a quarter. Focus on how many shares you own and how consistently you’re contributing, not just the balance you see today.
Don’t Make Big Changes Based on the Year
It’s common to hear, “this year is different” when things feel uncertain. But every market drop feels unique when you’re living through it. Over the long run, markets have recovered again and again. Resist the urge to overhaul your entire strategy based on headlines or short-term fears. Unless your personal goals have changed, your investment approach probably doesn’t need a major shift either.
Be Resilient and Proactive
Market downturns part of the investing journey. The key is to stay steady, think long-term, and make decisions that support your bigger goals. Stick to your plan, look for small opportunities to improve your strategy, and remember that staying invested typically works better than reacting to every market swing. Every smart step you take now helps set you up for stronger results later.
Key Takeaways
- Market downturns are normal and happen more often than people think.
- Staying invested and avoiding emotional decisions can protect your long-term returns.
- Smart strategies like dollar-cost averaging and tax-loss harvesting may turn challenges into opportunities.
- Diversifying your portfolio and keeping an emergency fund can make tough times easier to handle.
- Your investment approach should match your time horizon, goals, and risk comfort.
Action Items
I’m Tyson Lokke, a Certified Financial Planner™ with nearly 15 years of experience helping high-net-worth clients navigate complex financial challenges. My background includes roles at United Capital and Goldman Sachs, where I led financial planning and portfolio management for clients in Las Vegas and Reno/Tahoe. I specialize in strategic exit planning, tax-efficient wealth strategies, and multi-state planning—particularly for golfers, caddies, and their families. I also work closely with business owners, executives, and 401(k) sponsors. I hold a Business degree from the University of Nevada, Reno, and earned my CFP® certification from Bryant University. Outside of work, I enjoy golfing, time with my family, and giving back to my community.
Material prepared herein has been created for informational purposes only and should not be considered investment advice or a recommendation. Information was obtained from sources believed to be reliable but was not verified for accuracy. All advisory services are offered through Savvy Advisors, Inc. (“Savvy Advisors”), an investment advisor registered with the Securities and Exchange Commission (“SEC”).
All investments involve risk, including loss of principal invested. Material prepared herein has been created for informational purposes only and should not be considered investment advice or a recommendation. Information was obtained from sources believed to be reliable but was not verified for accuracy. All advisory services are offered through Savvy Advisors, Inc. (“Savvy Advisors”), an investment advisor registered with the Securities and Exchange Commission (“SEC”).
Works Cited
1. When markets decline: Smart investing during bear markets
3.Bear Market? Don’t Panic. Here’s How To Invest During One
4. How investors can ready their portfolios for a recession: ‘You’re looking for balance,’ expert says
5.Bear Market? Don’t Panic. Here’s How To Invest During One
6.5 money moves in a down market
7.Recession 2025: What to Watch and How to Prepare
8.Market Declines: A History of Recoveries
