What to do in a Falling Stock Market

Yesterday’s plunging price action in the S&P 500 got me thinking—what are we typically told to do in a falling stock market?

Declining S&P 2019 08 05

The advice basically falls into four categories.

The first category, I’m going to call “Finding the Zen in Stock Market Losses.” This involves advice such as:

  • “Relax!”
  • “Breathe!”
  • “Stop listening to the news!”
  • “Make a cup of herbal tea!”

(This last one is my favorite. A nice cup of Chamomile is the LAST thing most of us reach for when our net worth is plummeting).

The second category, let’s call “Doing something that doesn’t change anything.” Here, you’re advised to:

  • Read investment books
  • Review your holdings
  • Meet with your investment adviser, who will tell you to accept the fact that nothing can be done about stock market losses except to ride them out.

These actions keep you busy and distracted, but none of these strategies actions actually help you solve the problem of stock market losses.

The third category of advice is called, “Revisit Your Withdrawal Rate.” This is code for “prepare yourself to live on less because the value of your portfolio has plummeted.”

Then there’s the fourth category-- “Adjust Your Strategy.” This is what most of us do, with disastrous consequences. In investment-speak, adjusting your strategy is often called “rebalancing your portfolio.” But let’s just call this what it is: selling at the worst possible time because you’re in a panic.

Allow me to offer a different solution. What if you positioned yourself in a dynamic hedge, designed to make money when the market falls, and stand out of the way to allow you to enjoy your stock market gains when the market is rising?

That’s what I offer. Since February 2011, that’s what I’ve been doing. If you’d like to learn more, contact Tom O’Donnell at  804-855-4481 or tom@3dcapitalmanagement.com.

Past performance is not necessarily indicative of future results. There is no assurance our programs will achieve their objectives or avoid losses.