Market volatility can be unsettling. When headlines scream about falling stocks and portfolio values plummet, even seasoned investors feel a knot in their stomach. But history shows us that market downturns, while uncomfortable, are temporary. What matters most isn’t the crash itself—it’s how you respond to it.
If you’re facing a market downturn or worried about one on the horizon, here are three essential moves that can help protect your financial future and potentially position you for long-term success.
1. Don’t Panic—Stay the Course
The first and most important move during a market crash is often the hardest: do nothing. When your portfolio value drops 20% or 30%, every instinct screams at you to sell and cut your losses. But this is exactly when emotional decisions can destroy decades of wealth-building.
Market crashes are a normal part of investing. The S&P 500 has experienced numerous corrections and bear markets throughout history, yet it has always recovered and reached new highs. Investors who sold during the 2008 financial crisis, the 2020 pandemic crash, or any other downturn missed the subsequent recoveries that often happened faster than anyone expected.
What to do instead: Review your long-term goals. If you’re investing for retirement that’s 20 or 30 years away, today’s market value is almost irrelevant. Time in the market beats timing the market. Resist the urge to check your portfolio daily, and definitely resist the urge to make drastic changes based on fear.
2. Rebalance Your Portfolio
A market crash presents an opportunity disguised as chaos. While some investments fall dramatically, others may hold steady or decline less severely. This creates imbalances in your portfolio that you can use to your advantage.
Rebalancing means selling some of the investments that have held their value better and buying more of those that have fallen harder. This forces you to “buy low and sell high”—the fundamental principle of successful investing—without trying to time the market.
Example: If your target allocation is 70% stocks and 30% bonds, and a crash drops your stocks to 60% of your portfolio, rebalancing means selling some bonds and buying more stocks while they’re on sale.
Additional benefit: Rebalancing also helps manage risk. It prevents you from becoming overexposed to any single asset class and maintains the risk level you’re comfortable with.
3. Look for Buying Opportunities (If You Have Cash)
Warren Buffett famously said, “Be fearful when others are greedy, and greedy when others are fearful.” A market crash is when everyone else is fearful—which means it’s time to consider being greedy.
If you have emergency savings secured and extra cash available for investing, a market downturn offers stocks at discount prices. Quality companies that were overvalued last month might suddenly be trading at reasonable or even bargain prices.
Key strategies:
- Dollar-cost averaging: Instead of investing all your cash at once, spread purchases over several weeks or months. This reduces the risk of buying right before another drop.
- Focus on quality: Look for companies with strong balance sheets, consistent earnings, and competitive advantages. These businesses are most likely to weather the storm and thrive afterward.
- Consider index funds: If picking individual stocks feels overwhelming, broad market index funds let you buy a diversified basket of companies at crash prices.
Important caveat: Only invest money you won’t need for at least five years. Never invest your emergency fund or money needed for short-term goals.
What Not to Do
Knowing what to avoid is just as important as knowing what to do:
- Don’t try to time the bottom: No one can predict when a market will stop falling. Waiting for the “perfect” entry point usually means missing the recovery.
- Don’t abandon your investment plan: If you’ve built a solid long-term strategy, a crash isn’t a reason to throw it out.
- Don’t make decisions based on headlines: Media thrives on fear and drama. Your financial decisions should be based on your personal situation, not market noise.
The Bottom Line
Market crashes test your resolve as an investor, but they don’t have to derail your financial future. By staying calm, rebalancing strategically, and viewing downturns as opportunities rather than disasters, you can navigate volatility with confidence.
Remember: every market crash in history has been followed by a recovery. The investors who build lasting wealth aren’t those who avoid downturns—they’re the ones who respond to them wisely.
The best time to prepare for a crash is before it happens, but the second-best time is right now. Take a deep breath, review these three moves, and make decisions based on logic rather than fear. Your future self will thank you.
