Strategie
What to Do When the Market Falls 20, 30, 40%
Key takeaways
- The most important decision during a downturn is made before the downturn — by choosing your allocation and investment horizon.
- During an active downturn a checklist pays off: check your reserve, allocation, and horizon before selling anything.
- Selling out of fear is the costliest mistake — it converts a temporary paper loss into a permanent real one.
- Buying more during a downturn is sensible, but never bet on hitting the exact bottom.
- After the downturn everything seems obvious — but living through it is emotionally very hard.
When the market falls by tens of percent, the right action depends on a single thing: whether you prepared in advance. If you did, you have a clear plan. If not, the first step is to stop — and not take hasty action.
Step 1: check your cash reserve
Do you have 3–6 months of expenses in cash outside your portfolio? If yes, you are not under pressure to sell. If not, this is the first thing to fix before making any further ETF purchases. More in the article on strategies for downturns.
Step 2: check your horizon and allocation
Are you investing money you will not need for at least 5 years? Then a downturn is not a problem — it is a temporary paper state. If you need the money in 1–2 years, the downturn has revealed a poor allocation, not a poor market. The solution is a gradual reduction of equity exposure, not a panic sell-off all at once.
Step 3: do not check the portfolio daily
Looking at a red number every day activates an emotional response. Research shows that investors who check their portfolio less than once a month make fewer bad decisions. Turn off notifications, close the app.
Step 4: consider buying more (not speculating on the bottom)
If you have free cash and a long horizon, a downturn is a discount. Buy more — but do not try to hit the exact minimum. Nobody can do that; see why market timing does not work. Add a one-off payment on top of your regular DCA investment.
What never to do
- Sell the entire portfolio out of fear
- Shift to bonds or gold "until it blows over"
- Wait for "confirmation of the bottom" before buying back in — that signal arrives too late
- Follow daily news trying to find the answer to "why is it falling"
FAQ
Should I sell my ETF when the market is down 30%?
Almost never. Selling converts a temporary paper loss into a permanent real one. The exception is when you genuinely need the money in the short term — but that reveals a poor allocation, not a poor market.
When is the right time to buy more during a downturn?
Whenever you have free cash and a horizon of at least 5 years. Do not try to hit the exact minimum — nobody can do that. Add a one-off contribution on top of your regular investment and continue with DCA.
How do you know when a downturn is over?
You typically only know in hindsight. That is why a strategy must not depend on correctly timing the exit or re-entry. Buy and hold and DCA work regardless of where the bottom is.
What if I am losing sleep over a downturn?
Check your allocation — it is probably too aggressive for your actual risk tolerance. Reducing equity exposure is a legitimate choice, but do it gradually, not in a panic.