A market downturn is upon us. This post will contain a few positive actions to take while the market is falling. Most of these ideas assume you had a financial and investment plan in place already and did some preparation for this during the bull market. Even if you didn’t have a plan before, now is a great time to start!
As of this writing (4/4/25) the S&P 500 is well into correction territory and the NASDAQ looks like it will close in a bear market. Even for well prepared and experienced investors these market draw downs are painful and can cause questioning of our investment strategies.
Here are several actions to consider taking while the market is falling:
Bring In The Tax Loss Harvest
You probably have some unrealized losses in your portfolio, especially from recently invested funds. Consider tax loss selling (and reinvesting in something with a similar risk profile) to convert those to realized losses. ETF’s can work great for this, for example if you are selling a tech stock you could consider purchasing an ETF that holds tech industry stocks.
You might even be able to do it again in a couple of months if the market falls further. Be mindful of the rules and avoid wash sales. A wash sale occurs when you purchase the same security 30 days before or after you sell it. You won’t get to realize the loss in the case of a wash sale.
I wrote this post a couple of years ago if you need a detailed breakdown of the tax loss harvesting strategy.
Re-balance Your Portfolio
Unless you’re 100% invested in stocks, you probably have a portfolio consisting of bonds, cash and alternatives in addition to stocks. Fixed income has been a good diversifier this quarter. The 60/40 portfolio is once again not ‘dead’.
Whatever allocation you were targeting at the beginning of the year is probably off now. Consider using your fixed-income gains to purchase stocks at these new lower prices to get back to your original target allocation of stocks/bonds. Buy low, sell high.
Increase Your Savings (and Investing) Rate
This one might seem a bit counterintuitive. Assuming you are currently doing some sort of automated purchasing (such as through your 401(k) plan) you will already benefit from lower stock prices each pay period. If you can afford it consider increasing the amount of these purchases to potentially benefit even further.
In the long run it is very unlikely you will regret a higher savings rate. This is how you get rich slowly.
Start (or remember you have) a Cash Reserve
When you were building up your cash reserve you may have thought, ‘why am I investing in low yielding cash instead of stocks?’ Right now is why. If you have an emergency or opportunity come up during this market downturn you will not have to sell your equities, stock options, or RSU’s at an inopportune time.
If you don’t have a cash reserve yet you can start building it now. Consider doing this before you increase your longer term investments. For most people a cash reserve of 3-6 months worth of living expenses is plenty. Go for a year or more if you are self-employed or have a variable income.
Money markets continue to pay decent interest. As of this writing Schwab’s money market fund was yielding 4.18%.
Turn Off The Financial and Political Media
These media exist to sell advertising and the best way to keep you watching is to make you as anxious as possible.
Go to your library and put the latest editions of these three books on hold:
‘A Random Walk Down Wall Street‘ by Burton Malkiel
‘Stocks For The Long Run‘ by Jeremy Siegel
‘The Psychology of Money‘ by Morgan Housel
Read these books instead of watching financial media or doom scrolling. You will likely be a better investor after reading these books.
I hope these ideas help.
None of this is intended to be advice on your personal situation. Use it as a starting point, do your research, and consult (or find) a good financial advisor.
Feel free to contact me if you have any questions related to this post.
