Some smart—and unconventional—things to do in a down market

3.5 minute read
January 06, 2022

As part of our series on market volatility, we’re taking a closer look at some ways to stay ahead of the game the next time a market pullback begins to dominate headlines.

Market downturns are out of your control

Markets move based on variables no one—not even an advisor—can control or predict. And when stock prices decline, the steady drumbeat of negative news reports can drive many people to flee the markets out of fear (and miss out on potential gains as financial markets regain their strength).

But when others are pessimistic, you can reframe the situation as an opportunity. Here are a few strategies that have historically helped investors succeed in weathering market lows.

Tune out the noise

It’s okay not to check your portfolio balance when the market is falling. Turning off the news might help you stress less—and keep you from acting impulsively based on emotion.

Revisit your asset allocation

We designed your plan to account for your risk tolerance. But if you feel like your risk tolerance has changed, together we can figure out the balance of stocks and bonds best suited to your comfort level with risk and other personal circumstances, and then adjust your plan accordingly. Remember, your plan already includes low-cost ETFs so you don’t have to worry about high costs eating away at your returns.

Set realistic expectations

U.S. stock and bond markets have posted remarkable returns in the past few decades. Statistically speaking, it would be prudent to expect lower returns in the future. By staying the course and sticking to your plan, you can still achieve your goals despite potential headwinds of lower returns.

Stay diversified

Downturns offer case studies in how different asset classes and sector exposures can help protect your portfolio. We’ve designed your portfolio to be diverse so it can handle exactly these types of situations. Diversification will offset the impact of future downturns and keep you on a steady track to reach your goals.

And keep in mind: When the markets are underperforming, your patience can reward you.

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All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss.

Bond funds are subject to the risk that an issuer will fail to make payments on time, and that bond prices will decline because of rising interest rates or negative perceptions of an issuer's ability to make payments.

Investments in bonds are subject to interest rate, credit, and inflation risk. Investments in stocks or bonds issued by non-U.S. companies are subject to risks including country/regional risk and currency risk.

You must buy and sell Vanguard ETF Shares through Vanguard Brokerage Services (we offer them commission-free) or through another broker (which may charge commissions). See the Vanguard Brokerage Services commission and fee schedules for full details. Vanguard ETF Shares are not redeemable directly with the issuing fund other than in very large aggregations worth millions of dollars. ETFs are subject to market volatility. When buying or selling an ETF, you will pay or receive the current market price, which may be more or less than net asset value.