Editor’s Note: In light of President Trump’s “Liberation Day” tariffs triggering chaos in the markets, I’m sharing an insightful column by Chief Income Strategist Marc Lichtenfeld from a few years back instead of our regular Value Meter update.
Yesterday, the S&P 500 plunged 4.84%, the steepest drop we’ve seen since June 2020, and the downward trend hasn’t eased up yet. It’s understandable to feel anxious with such a sharp decline—we all do. That said, I can’t think of anyone more trustworthy than Marc to steer us through these turbulent times. As one of Marc’s devoted readers, Bryan, put it, “Marc, I can’t thank you enough for your level head when it comes to long-term investing.”
I know it’s challenging, but hang in there. This, too, shall pass.
– James Ogletree, Managing Editor
One quality that often earns admiration is the ability to stay composed under pressure.
Think about the people we admire… Politicians who lead decisively during crises, or first responders like police officers and firefighters who stay focused amid chaos. Consider athletes, such as a quarterback maintaining poise under a fierce pass rush to score a touchdown. And let’s not forget parents who soothe their child during frightening health emergencies, despite their own fears.
It’s not just about speaking eloquently, extinguishing fires, throwing perfect passes, or calming a child—it’s the ability to do so when fear and external pressures would overwhelm most people.
Yet, oddly, investing seems to be different. Even those who handle family emergencies with grace can panic when faced with a market downturn.
Bear markets and panic-driven sell-offs, like those in 2008 and 2020, are recurring events; they’re part and parcel of market dynamics.
However, investors who endure during market turmoil often find themselves well-positioned to gain, provided they follow these three steps.
1. Align your investments appropriately.
If any investments are funds you’ll need within the next three years, consider pulling them out. You can’t risk that money if it’s meant for essential expenses like a mortgage, healthcare, or tuition.
On the other hand, long-term investments aren’t as vulnerable to interim market falls. Who can say where the market will stand five or ten years down the road? Think back to the 2008 crisis. In just five years, things had turned around.
But if you’re relying on your $10,000 investment to cover next year’s mortgage and it has dwindled to $5,000, you’re in a predicament.
2. Implement stop-loss strategies.
The Oxford Club advocates for trailing stops. They safeguard your profits and prevent minor setbacks from spiraling into major losses.
During market slides, it might seem tempting to disregard your stop-losses, particularly when nothing fundamental has changed within the company, and you’re left dealing with other investors’ panic. Yet, you initially placed those stops for a reason, devoid of emotional influence. Disabling them during a downturn is typically an emotional reaction and rarely a wise move. Stick to your stops.
3. Maintain a “market downturn fund.”
Always keep some cash on the sidelines to deploy when markets are crashing. Timing the market perfectly is a long shot, but you can acquire stocks you’ve been eyeing at a bargain.
Reserve these funds for when markets appear dire—when panic is palpable, and news outlets exacerbate fears. Buying in such conditions, with widespread selling and gloomy news, will be unnerving. But in a few years’ time (likely sooner), you’ll be grateful for taking that step.
Consider 2008 and 2009 as examples. You probably wish you’d invested heavily back then. Despite skepticism and discomfort, it would have been the right move.
The hardest part about a sudden market downturn is the uncertainty of its duration. It often feels interminable. I’ve jokingly told colleagues, “This market is going to zero,” during such times, because that’s indeed the sentiment.
But staying calm and tapping into your inner Peyton Manning—standing firm like a quarterback amidst chaos—can leave you in a stronger financial and emotional position. You might even find yourself admired by friends, bewildered by how you remained so unfazed while everyone else was on edge.
