What a tale of two years! During 2024, the stock market seemed like nothing could hold it back. Turn the page to 2025, and it seems like every piece of news that hits the tape has a negative impact on the markets.
Last year, when the markets were taking off, we gave you the “Top 3 Moves for a Rising Stock Market”. Now that the inverse is happening, we want to bring you the “Top 3 Moves for a Declining Stock Market”. Let’s jump in!
1. Reevaluate your asset allocation
When I say “reevaluate”, I don’t mean make any rash decisions based on the latest news cycle. Your thought process should not be, “the markets are volatile right now, so I’m changing my asset allocation to be 100% in cash”. Rather you should view this through a long term, strategic lens.
Have your goals changed? Perhaps you are nearing retirement? Perhaps you plan on having a big cash inflow or outflow in the next 6-12 months? All of these factors should go into your decision making, not just what the stock market has done in the past 3 weeks.
The other factor you should consider are your recent sleep habits. Yes, that's right, how has your sleep been recently? If you are sleeping like a baby with no worry about your investment portfolio, then I would say your asset allocation indeed matches your risk tolerance. However, if you have been tossing and turning at night or have been constantly checking your portfolio on a daily basis to see ‘how much you are losing’, I would say your portfolio is likely too risky for you.
2. Rebalance for Long-Term Stability
Wait! Isn’t this the same tip you put in the “Top 3 Moves for a Rising Stock Market” post? Yes!
Whether the market is going up or down, you should consider rebalancing your portfolio. If your target is 60% stocks, and the stock market has gone down, your portfolio may be light on stocks (i.e. it may be at 50%). By rebalancing your portfolio, you will be selling assets that have held up during this downturn and buying assets that are on sale. This systematic process is one way to ensure we can “buy low and sell high”.
Stay tuned for our follow up post on proper rebalancing strategies!
3. Give yourself some perspective
You should always take market downturns in context. Often, but not always, a stock market pullback will happen after a period of above average returns (like we saw in 2023 and 2024). It is always helpful to review the long-term performance of your portfolio, rather than the performance of just the last 3 weeks. You can then chart this long-term performance relative to your goals. Are you still ahead of your goals? If so, that is fantastic, and these periods of market volatility are going to be just a blip on your radar.
It's easy to lose perspective when managing your own investments. That's why we're here. As your trusted advisors, we're committed to not only optimizing your investments but also providing the ongoing perspective you need to understand how your portfolio fits into your larger financial life.
Bonus Tip: If the day-to-day gyrations and news feeds are making you crazy, turn off the tv, media, and social media. Relax. Go for a walk, play a round of golf, take your kids to the zoo – do something to get your mind off what is going on in the world. Afterall, we could all use a little break from reality now-and-then!
Ready to take on the markets together?
Market volatility can be unsettling, but you don't have to face it alone. Our expertise can help you restructure your portfolio and develop a tailored plan that provides the perspective needed to weather any market conditions. Contact us to schedule a consultation and gain peace of mind.