4 Things To Do When The Stock Market Drops


Update February 24, 2020 approximately 6:00 p.m. – the market closed today with the Dow losing almost 1,032 points or 3.6%. This was the third time in history that the index declined 1,000 or more points in a single day. This is the worst single day loss for the index in both points and percentage decline since February 8, 2018. The S&P 500 lost about 3.4% today. For both indexes today’s losses erased their gains for 2020 to date.

This morning as I update this, the stock market is appears poised to take a hit prior to the open. The Dow’s pre-market implied open is down over 730 points. This seems to be largely due to fears about the possible spread of the Coronavirus from China. Of course nobody knows where the market is headed. What should you do now? Here are 4 things to do when the stock market drops.

4 Things to do When the Stock Market Drops


Cable news networks like CNBC have a field day during steep, sudden stock market corrections like we will likely see today. It’s easy to get caught up in all of this hype. Don’t let yourself be sucked in.

Step back, take a deep breath and relax.

Take stock of where you are 

Review your accounts and assess the extent of the damage that has been done. Investors who are well-diversified may be hurt but generally not to the extent of those who highly allocated to stocks.

Review your asset allocation 

With the tremendous year for stocks in 2019 and so far in 2020, many investors are likely still in a good position. If you haven’t done so recently, then perhaps it is time to review your asset allocation and make some adjustments. Proper diversification is great way to reduce investment risk. This is a good time to rebalance your portfolio back to your target asset allocation if needed as well.

Go shopping 

Market declines can create buying opportunities. If you have some individual stocks, ETFs or mutual funds on your “wish list” this is the time to start looking at them with an eye towards buying at some point. It is unrealistic to assume you will be able to buy at the very bottom so don’t worry about that.

Before making any investment be sure that it fits your strategy and your financial plan. Also make sure the investment is still a solid long-term holding and that it is not cheap for reasons other than general market conditions.

The Bottom Line 

Steep and sudden stock market declines can be unnerving. Don’t panic and don’t let yourself get caught up in all of the media hype. Stick to your plan, review your holdings and make some adjustments if needed. Nobody knows where the markets are headed but those who make investment decisions driven by fear usually regret it.

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Originally posted at https://thechicagofinancialplanner.com/stock-market-drops/

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