Dear Friend in Finance,
I've been doing my best to avoid headlines, but then this week happened. It seems like everyone else isn't avoiding them, and suddenly, the stock market is in free fall. The anxiety is real. So how do I create an investment strategy that protects me before the panic hits?
Sincerely,
Is It Too Late To Panic?
Dear Is It Too Late To Panic,
An important maxim to remember during times like these: Emotions cost money. This holds true during bull markets, when excitement leads to risky buys, and during bear markets, when fear tempts us to hit the panic-sell button and lock in losses.
No one can guarantee you will not experience losses. And if someone does, start backing away from the scammer. But a strong investment strategy can help you weather the storm. Here are a few ways to do just that.
Build Your Plan with Days Like These in Mind
Our brains are wired with something called recency bias. We put more weight on what just happened and less on long-term patterns. So when the market climbs, we assume it will keep climbing. When it drops, we assume it will fall forever. A solid financial plan is built to counteract that. If it was made during a rising market, it should still account for times like this, or like 2020, or 2008. Choose an investment allocation that lets you sleep at night during downturns. If your plan only works when everything is going up, it is not really a plan. It is a wish.
Systematic, Not Erratic
Even with a strong plan, it is normal to feel rattled during sharp declines. That is where systematic rebalancing comes in. Rebalancing means sticking to a clear process for adjusting your portfolio. For example, if stocks have dropped and bonds have held steady, you might sell a bit of bonds and buy more stocks while they are temporarily lower in price. Over time, as markets recover, that disciplined move can enhance your long-term returns. This approach allows you to let volatility work for you, rather than against you.
Spread the Risk, Not the Panic
Spreading your investments across stocks, bonds, and other types of assets helps cushion the impact when one part of the market struggles. Diversification does not eliminate risk, but it spreads it out so no single event has too much sway over your financial future.
Silence the Noise, Stick to the Signal
Headlines are designed to stir emotion, not provide long-term perspective. If the news is making you anxious, give yourself permission to unplug. You do not need minute-by-minute updates. You need a plan that holds up across weeks, months, and years. Whatever your time horizon is, it is surely much longer than the next 5 seconds of attention, which is all that social media and headlines care about.
Final Thought
Your financial plan should not be built for sunshine only. It should be built for storms too. That is what gives it strength. So no, it is not too late to do something. But don't panic. Instead, this is the perfect time to recommit to a thoughtful, resilient strategy.
Sincerely,
Your Fellow Friend in Finance