How to invest when stocks are sinking

CNN

18-03-2025

March has been a dizzying month for US markets. The S&P 500 just posted two days of back-to-back gains, but the benchmark index is still down almost 5% this month.
President Donald Trump's tariff announcements have roiled markets and sent US stocks bouncing all over the place. While the uncertainty on Wall Street can be unsettling, selling your stocks in panic would likely only make it worse.
Although recent market swings can be daunting, market volatility is more normal than you'd think, according to Jeff Buchbinder, chief technical strategist at LPL Financial.
'Volatility is like a toll investors pay on the road to attractive long-term returns,' Buchbinder said in a recent note.
The last thing you want to do is 'panic sell.' Volatility is a short-term feature of markets. So, too, are so-called corrections, when stocks fall 10% from their most recent high.
Historically, the US stock market has climbed higher in the long term, smoothing out kinks and rewarding investors who stayed in the market.
Treasury Secretary Scott Bessent on Sunday told NBC News that he was 'not at all' worried about recent drops in the stock market.
'I've been in the investment business for 35 years, and I can tell you that corrections are healthy,' Bessent said. 'They're normal. What's not healthy is straight up.'
Still, seeing your retirement account take a hit can be unnerving, especially given the whiplash of recent market swings. But if you're investing for retirement or long-term financial goals, the best thing to do during moments of uncertainty is to keep calm and tune out the noise.
'Reacting emotionally to the markets can wreck your returns,' said Jon Ulin, a certified financial planner and chief executive at Ulin & Co. Wealth Management.
'Panic selling often means locking in losses and missing the best rebound days,' Ulin said.
A core tenet of investing is that no one can really 'time' the market. Swings can be so unpredictable that staying invested is a better strategy than selling and trying to pick the best opportunity to get back into a fund or stock you sold. People who sell when times are tough tend to lose out in the long run.
'Protecting your portfolio isn't about timing the market — it's about time in the market with a strategy that can withstand the storm,' Ulin said.
If you've checked your retirement account and felt unsettled — you're likely not alone.
The S&P 500's performance from Trump's inauguration to March 7, or 46 days into his second term, was the index's worst start to a presidency since President Barack Obama's first term, according to Sam Stovall, chief investment strategist at CFRA Research.
Trump's whipsawing tariff proposals are the primary reason for the markets' rollercoaster ride, because they have created an environment of uncertainty. US stocks have slid amid the ensuing economic chaos, with the Dow, S&P 500 and Nasdaq Composite largely erasing their gains since the election.
The benchmark S&P 500 last week closed down 10% from its record high reached on February 19, its first correction since October 2023.
Nonetheless, it's important to recognize that market downturns are normal occurrences. The S&P 500 on average has three drops between 5% and 10% each year, according to Buchbinder.
Stocks on average see one correction a year, according to Buchbinder. Before the S&P 500 closed in correction territory last week, it had been over a year since its last correction. If you're planning to hold your investments long term, such drops in one year don't necessarily matter.
Heading into this year, US stocks had been at record highs, with some strategists questioning whether they were overvalued. The S&P 500 posted back-to-back gains of more than 20% in 2023 and 2024 — a feat not achieved since President Bill Clinton was in office in the 1990s.
After those sky-high gains, investors were already uncertain whether the good times would last. Big tech stocks that propped up the S&P 500 in 2024 have sputtered this year. While downturns are frustrating, they also present opportunities to 'buy the dip' and purchase stocks while they are cheaper.
'Encouragingly, history hints (but does not guarantee) that quick drops below the 10% decline threshold typically resulted in shorter and shallower total declines, followed by more rapid recoveries,' Stovall said in a note Monday.
'Unfortunately, the greatest uncertainty surrounding this decline and possible recovery is that its major headwind — the tariff tiff — appears far from over,' Stovall added.
While markets face continued tariff uncertainty, it can be helpful to return to investing 101.
A portfolio that is well-diversified across different types of stocks and bonds can help you mitigate losses during market swings. That becomes especially apparent during times of heightened volatility.
'Spreading risk across different asset classes, sectors and regions is investing 101,' Ulin said. 'Think of diversification as your portfolio's seatbelt, keeping you secure when markets hit rough air.'
If your portfolio is overexposed to US stocks, it might be smart to consider buying stocks in global markets like Europe and to further diversify by investing in Treasury bonds. Diversification might also look like investing in stocks in industries that have less exposure to tariffs, or 'tariff-proofing' your portfolio, Ulin said.
As with all things in investing, there is no one-size-fits-all. Each person has their own unique financial goals and tolerance for risk.
Periods of volatility present opportunities to reflect on whether or not your investments still align with your financial goals, according to Tom Hainlin, national investment strategist at US Bank Wealth Management.
That means reviewing your investing goals and reassessing whether you're well situated to pay for big-ticket items you might have coming up, whether you have enough cash for emergencies and whether there are new opportunities to buy stocks given the recent declines. If you are closer to retirement, you might consider parking more cash in Treasury bills or other cash-equivalent assets, as one of the most essential steps to take is to try and minimize sequence risk.
The bottom line: Volatility — though unnerving — is normal. Keep a level head and look for opportunities to diversify and bolster your portfolio.
'Regularly review your asset allocation, rebalance when needed and tune out the noise,' Ulin said. 'Long-term success is built on discipline, not panic.'