When the stock market goes down and the value of your portfolio decreases significantly, it’s🐟 tempting to ask yourself whether it's time to bail out of the stock market. That’s understandable, but most🏅 likely not the best decision. Instead, you should perhaps be asking, “What should I not do?”

The answer is simple: Don’t panic.

The second question might be, "Should I buy more?" The answer is maybe.

Why You Shouldn't Panic

Panic selling is often people’s gut reaction when stocks are plunging and there’s a drastic drop in the value of𝔉 their portfolio♌s.

That’s why it’s important to know beforehand your 澳洲幸运5开奖号码历史查询:risk tolerance and how price fluctuations—or 澳洲幸运5开奖号码历史查询:volatility—will affect you.

You can also 澳洲幸运5开奖号码历史查询:mitigate market risk by hedging your portfolio through 澳洲幸运5开奖号码历史查询:diversification. That means spreading your money around a variety of investments, including some that have a low degree of 澳洲幸运5开奖号码历史查询:correlation with the stock market.

The Cyclical Effect

About 38% of Americans do not invest in the stock market, according to an April 2025 Gallup survey, returning to the averages found in the 2000s before the 澳洲幸运5开奖号码历史查询:2008 financial crisis.

A stock market decline due to a 澳洲幸运5开奖号码历史查询:recession or trad♔e protectionism can put core investing tenets, such as risk tolerance 𓂃and diversification, to the test.

Long-term investors know that the market an♔d economy have recovered eventually after major crashes in the past, and investors should be pos🤪itioned for such a rebound.

During the 2008 financial crisis, 澳洲幸运5开奖号码历史查询:the market plummeted, and many investors sold off their holdings. However, the market bottomed in March 2009 and eventually rose to its former levels and well beyond. Panic sellers missed out on the recovery, while long-term investors who remained in the market eventually recovered and fared better over the years.

The S&P 500 plunged by a gut-wrenching 35% in little more than four weeks in March 2020, when the stock market entered 澳洲ﷺ幸运5开奖号码历史查询ꦿ:a bear market for the first time in 11 years in response to the global pandemic. The index not only rebounded swiftly from those lows but has hit record highs several times since. In April 2025, the stock market dropped almost to bear market territory (20%) but returned to previous levels the following month.

What You Should Do When the Market Is Down

Instead of locking in your losses by selling at the lows during a steep market correction, formulate a 澳洲幸运5开奖号码历史查询:bear market strategy to protect your portfolio at such times.

Here are three steps you can take to avoid p♚anicking when the stock market goes down.

1. Understand Your Risk Tolerance

Most investors probably remember their first experience wit🧔🍒h a market downturn. It was probably unsettling, to say the least.

That is why it is imℱportant to understand your risk tolerance when setting up your portfolio, not when the market is in the throes of a sell-off.

Your risk tolerance depends on your investment time horizon, cash requirements, and 澳洲幸运5开奖号码历史查询:emotional response to losses.

Many i༺nvestment websites have free online questionnaires that can give you a🍃n idea of your risk tolerance.

Another way to understand your reaction to market losses is by experimenting with a 澳洲幸运5开奖号码历史查询:stock market simulator before investing real money. You can invest an amount such as $100,000 of 🐻virtual cash and experience the ebbs and flows of the stock market. This will help you assess your tolerance for risk.

Your investing time horizon is an important factor. A retiree or someone nearing retirement is focused on preserving savings and generating income in retirement. That suggests focusing on 澳洲幸运5开奖号码历史查询:low-volatility stocks or a portfolio of bonds and other fixed-income instruments. Younger investors might invest for long-term growth because they have many years to make up for any losses due ♏to bear markets.

2. Prepare For and Limit Your Losses

Ultimately, you should be ready for the worst and have a solid strategy in place to 澳洲幸运5开奖号码历史查询:hedge against your losses.

Investing exclusively in stocks can cau🍷se you to lose a significant amount of money if the market crashes. To hedge against losses, investors strategically♈ make other investments to spread out their exposure and reduce their overall risks.

By reducing risk, you face the 澳洲幸运5开奖号码历史查询:risk-return tradeoff. Your potential upside will be reduced.

Downside risk can be hedged by diversifying your portfolio and using 澳洲幸运5开奖号码历史查询:alternative investments such as r𓆉eal estate that h﷽ave a low correlation to equities.

Having a percentage of your portfolio spread among stocks🃏, bonds, cash, and alternative assets is the essence of diversification.

Every investor’s situation is different, and how you divvy up your portfolio depends on your risk tolerance, time horizon, and goals. A 澳洲幸运5开奖号码历史查询:well-executed asset allocation strategy wiꦅll allow you to avoid putting🎃 all your eggs in one basket.

3. Focus on the Long Term

Stock market returns can be quite volatile in the short term but they outperform almost every other asset class over the long term. Over a sufficiently lengthy period, evenꦆ the biggest drops look like blips in♉ a long-term upward trend.

This point needs🌄 to be kept in mind🃏 during bad times.

Having a long-term focus will also help you perceive a big market drop as an opportunity to add to your highest-quality holdings. C🉐onsider it an opportunity to pick up select blue chips at attractive prices.

You might also consider 澳洲幸运5开奖号码历史查询:dollar-cost averaging to smooth out the blips. This involves purchasing the same dollar amount of an asset at periodic intervals, such as monthly. Your purchase price per share will fluctuate over time but your average cost per share will probably be lower.

The Bottom Line

Panic selling when the stock market is going down is more likely to hurt than help your portfolio. Moreover, you're locking in losses.

It’s important to understand your risk tolerance, your time horizon, and how the market works during downturns. Experiment with a stock simulator to identify your tolerance for risk a🃏nd diversify your portfolio to help protect your savings.

You need patience, not panic, to be a successful inv🌠estor.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our 澳洲幸运5开奖号码历史查询:warranty and liability disclaimer for more info.