The truth is no one knows exactly what will happen next with the stock market. Recent weeks, following the fastest bear market in history, have seen the market skyrocket in the midst of horrible unemployment data. How are we to know what’s next? That’s what makes investing frustrating, uncertain, exciting and rewarding -yes, rewarding.

It’s easy to say “this time will be different” in the midst of the current market decline. However, by using history as our guide investors can see a different, long-term perspective; void of emotional and in-the-moment decision making.

Check out this chart below. Stock market slides over a few days or months may lead investors to anticipate a down year. But a broad US market index had positive returns in 15 of the past 20 calendar years, despite some notable dips in many of those years. 

 

  • Intra-year declines for the index ranged from 3% to 49%.
  • Calendar year returns improved on those intra-year slides. The steepest declines saw notable recoveries, and in 15 of the 20 years, stocks ended up with gains for the year.
  • Even amid the financial crisis in 2009, a 27% plunge gave way to a 28% gain by the end of the year.

 

Past performance is no guarantee of future results. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. In US dollars. Data is calculated off rounded daily returns. US Market is the Russell 3000 Index. Largest Intra-Year Decline refers to the largest market decrease from peak to trough during the year. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes.Investing risks include loss of principal and fluctuating value. There is no guarantee an investment strategy will be successful. Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.

What to Do When the Stock Market Is Falling

Have a Plan 

Ideally, you should have a plan well before disaster strikes. This is something a qualified CFP(R) can help you with. If you don’t have a plan, there are still proactive steps you can take now. It may be possible to use tax-loss harvesting to improve your long-term returns or utilize a Roth conversion to help lower future taxes.

Keep Your Cool

It’s the goal of every investor to buy low and sell high. Sounds simple, but it can be difficult in practice. Risk-tolerance questionnaires and hypothetical situations seem easy when the market is good. But when real dollars are on the line everything changes. In the words of Mike Tyson, “Everyone has a plan until they get punched in the mouth.” Keep your calm and remember your plan. It may be the only thing that saves your financial future.

If You’re Young

Use this time to your advantage by investing systematically in the market. The strategy is not to perfectly time the bottom, but rather continue purchasing investments at lower prices. History has rewarded investors who started early and learned the powerful habit of saving diligently. If you’re employed and have a retirement plan, here are a few things you should be doing with your 401(k) right now.

If You’re Retired (Or Getting Close)

It’s time to get serious about your financial picture and what the future may hold. A successful retirement is possible regardless of market conditions with proper planning and strategy. A fiduciary financial advisor can help you with comprehensive financial planning and ensure your investment plan matches your priorities.

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Advisory services offered through One Degree Advisors, Inc. Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities. For a full list of disclosures please see our website at onedegreeadvisors.com