Ways to Talk Yourself off the Ledge When the Entire Market Seems Like its Falling to Pieces

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Nobody likes to see their investments decline, especially during retirement and the prospects of going back to work are not possible. The first thing to do is not panic – the more rational we are, the better decisions we tend to make. Markets can move very quickly in the other direction – 70% of the best days occur within 2 weeks of the worst days. As the old saying goes, it is “time in” the market and not “timing” the market. Unfortunately, the pandemic and global economics have created a perfect storm with interest rate hikes, inflation, low unemployment, existing supply chain issues and China shutting down plus the icing on the cake – the war in Ukraine. This uncertainty can get much worse before it gets better, but there are several strategies you can take advantage of during a market decline that can help you in the long term. Focus on what you can control.

What are your alternatives?

Before jumping ship, it makes sense to evaluate where you are going. Cash is still earning below average returns especially with high inflation numbers. Real estate is on a tear but creates less liquidity. I bonds seem like a great idea but have limited purchase amounts. If you decide to get out, when do you get back in? Remember you are investing for the rest of your life and you can’t plan for Armageddon.

Below is a graph of a client’s balanced portfolio since 2015. This is what long term can look like. You can see how rapidly the market turned around after March 2020 and the growth since then. Four steps forward and one step back – we had double digit returns in stocks for the last three years and now it’s time to give some of it back. If you timed this all wrong you may never recover. 


Buy Assets on Sale

If you have extra cash sitting on the sidelines that you don’t need within the next 12 months, take the opportunity to buy more stocks at lower prices. Had you dumped in cash in March 2020, even today you would still be way ahead. Having more shares when the market goes up allows you to recover faster as you have more shares on the way up than you did when the market went down.

If you don’t have additional cash but would like to take advantage of the decline, you can shift your allocation to slightly higher equity providing your risk tolerance can accommodate the change.

Tax Loss Harvesting

If you are invested in funds that have a similar alternative to what you are currently invested in and you have a loss, you can swap out your current fund, take the tax loss and buy back into a similar fund. For example, if you hold the Vanguard S&P 500 Index and you are down $20K, sell it and take the $20K loss and buy back the Schwab S&P 500 Index. You banked the loss, but you are still invested in a very similar investment. If the market changes directions, you will have the same exposure but benefit from the loss which can offset future taxable gains.

Cash Reserves

You should aim to keep 12 months of “grocery money” set aside. Knowing that you have cash to meet your short term needs and goals will alleviate some of the stress of having to sell when the market is down. Having a cash cushion allows you to be more strategic on when to replenish cash.

If you are anxious about the market, rather than bailing (but still not ideal), you can take extra cash out as a cushion or you could shift your allocation to be more conservative. If you do go this route, it would make sense to have a conversation with your advisor about your risk tolerance.

Financial Planning Assumptions

Go through your financial plan with your advisor. Losses have already been baked into the results. You can adjust inflation, spending, returns etc. and review the outcomes which can be reassuring. We have modeled large market declines into the “bad timing” scenario already. Bad timing is a stress test that models two years of consecutive bad returns based on current portfolio allocation. (Keep in mind the broad equity market will likely be down more significantly than your portfolio unless you are invested in 100% stock.) Bad timing shows a large hit to the portfolio when you are beginning to draw down assets for retirement expenses. We also plan for longer than average life expectancies which provides some cushion.

Spend Less Temporarily or Put off Large Discretionary Purchases

If you are still feeling uncomfortable, you can delay large purchases such as buying a new car or boat, taking a big vacation or making home renovations. We can also model reduced spending for a couple years until recovery and analyze the results. If you are gifting to family, this goal can also be adjusted temporarily. Oftentimes, small changes in spending can have a huge impact during market downturns. Psychologically it feels right to spend less when times are rough, and make those discretionary purchases when the outlook is rosy.


We have been working with clients for over 30 years and we have planned for these events. We have no idea when downside volatility is going to turn the corner or what the future holds, but as long as you have faith in capitalism and growth of the global economy, this too shall pass.