The Stock Market Is on an Upswing: 7 Money Moves To Make as Soon as It Drops 10%
Written by
Jordan Rosenfeld
Edited by
Molly Sullivan
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Despite rumblings of an economic downturn, the U.S. stock market has remained on a serious upswing. On March 13, the S&P 500 closed at a new record high and even the Nasdaq had rebounded from a slight dip. Things are looking pretty rosy for Wall Street.
However, stock markets are notorious for their roller coaster-like activity over the years, and major events, such as the forthcoming presidential election in 2024, can cause wild swings.
GOBankingRates spoke with experts about how serious of a dip should have you worried and the seven money moves to make if it does drop a certain amount.
10% and Above
It’s best to take the approach that market ups and downs are going to happen, according to Ron Stefanski, a business thought leader and the founder of the website for entrepreneurs BusinessGuru.
“It’s just part of the investment cycle, like seasons changing. Some downturns are no biggie, just temporary bumps in the road,” Stefanski said.
However, some of these “bumps” could potentially signal bigger money storm clouds ahead that you need to prepare for, he warned.
“Generally, I start getting a little squinty-eyed when I see the major stock indices drop 10% or more in a short span. That’s usually the kind of dip that warrants taking a closer look versus just shrugging it off. Not full-on panic mode, but time for a portfolio check-in.”
Buy Stocks
While a 10% dip might sound like a lot, “[i]ntra-year pullbacks in U.S. stocks of 10% or more are more common than not, even in positive years,” according to Ryan Graves, president of Bemiston Asset Management LLC. “After such downturns, returns are positive.”
He recommended that if people have extra cash, a significant pullback can be a great time to buy stocks.
“Even in positive years, the S&P 500 frequently experiences double-digit intra-year declines. A decline like that can wipe out a competitive bid for a house,” he explained. “With CD and money market rates hovering around 5%, there is less marginal benefit to taking on a lot of additional stock risk with cash you may soon need.”
Rebalance Your Investment Portfolio
The next thing to do if the stock market plummets 10% or more, is to check if your investment mix still aligns with your long-term goals and how much risk you’re really willing to take on, Stefanski said.
“A downturn can throw off that target allocation balance. You may need to do some rebalancing — sell some laggards and beef up the stronger players to get everything shipshape again.”
Engage Tax Loss Harvesting
However, there is a “little silver lining” when the markets take a dip, Stefanski said.
“You can actually use it as a tax-planning opportunity. It’s what they call tax-loss harvesting in the finance world. Basically, you can strategically sell off some of the losers in your portfolio to offset any taxable gains you might have made on the winners.”
Don’t Panic
The main thing is not to go into full panic mode and sell everything when the market dives, Stefanski urged.
“Think it through, review your plan and make rational moves — not reactive ones. At the end of the day, your investment approach needs to be built for the long haul and able to handle some turbulence.”
Stefanski takes the attitude that investing is kind of like entrepreneurship.
“There will be good times and rough patches. But if you have a solid strategy and stick to it through the rollers, you’ll come out on top. The wealth you’re working toward is waiting for you on the other side if you just batten down the hatches when storms hit.”
When the stock market takes a plunge, it’s natural to feel worried, but panic selling is usually not the best move.
“Markets go through cycles of ups and downs, so having a long-term plan and avoiding rash decisions based on short-term volatility can help you navigate turbulent times,” Stefanski said.
Look At the Big Picture
In lieu of panic selling in the case of a dip, Nathan Jacobs, senior researcher at The Money Mongers, Inc,. suggested pausing and looking at the bigger picture.
“A market dip could present opportunities to buy quality stocks at discounted prices or rebalance your portfolio by adding some less volatile investments like bonds.”
And of course, if you find yourself overwhelmed, seek guidance from a financial advisor, Jacobs urged.
“They can help you stick to your plan and maintain a level-headed approach.”
Be Prepared With an Emergency Fund
The potential for such dips means it’s crucial to have an emergency fund in place to avoid the need to sell investments at a loss during market downturns, according to Jeff Mains, owner of Champion Leadership Group LLC.
“Staying informed, avoiding hasty decisions based on short-term market movements, and consulting with a financial advisor can help safeguard your finances and investments during turbulent times,” Mains said.
“This balanced approach leverages business growth expertise, emphasizing strategic planning and risk management to navigate market uncertainties,” he added.
Keep This One Thing in Mind
The most important thing to keep in mind, Jacobs said, is that market fluctuations are normal, and recoveries tend to follow downturns.
“By staying disciplined, diversified, and focused on your long-term goals, you can weather the storms and potentially benefit from the eventual market rebounds.”
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