How Should I Prepare for a Market Downturn?


In our new Ask an Advisor series, members of Grow’s Financial Advisor Panel answer your most burning money questions. Today, New York-based CFP Stacy Francis of Francis Financial explains why it’s important to stick with an investment strategy—no matter what the market does.

Q: We’ve been in a bull market so long that I’m afraid we’re due for another market downturn. Should I do anything differently with my long-term investment accounts to prepare?

Before you make any decisions on your long-term investments, it’s important to fully understand your risk tolerance, or how well you can stomach market fluctuations. This will help you decide how to approach your overall investment strategy—including your portfolio’s breakdown of stocks (typically considered the riskier bet) versus bonds (generally a safer option)—and how you’ll react when the market’s up and down.

But even if your risk tolerance is low (meaning you might opt for more bonds than stocks), you don’t want to transition to only cash or bonds as a reaction to a market downturn. By doing so, you are essentially handicapping yourself and your portfolio’s long-term growth. Pulling investments in anticipation of market movement could put you at risk of missing out on days of strong returns that have historically followed a market drop.

While it may be scary or nerve-wracking at the time, remember not to let your emotions determine your investment strategy because that can lead to mistakes. For example, excitement usually builds as the market rises. Investors are happy with the market’s performance, and those who aren’t invested are eager to join in on the good times. But this can result in buying when prices are at or near their peak. Then after a market peak, prices begin to decline, and investors start to worry. As the fall deepens, investors may become increasingly wary of how much further prices can fall and perhaps sell while prices are low. Of course, prices have eventually rebounded, historically…and we repeat the same cycle of emotions (and mistakes) all over again.

So the bottom line is this: Always align your investment strategy with your risk tolerance and long-term goals, then stick with that strategy regardless of your emotions and the market’s fluctuations.

Grow Financial Advisor Panel participants are responsible for the content expressed and do not necessarily represent the views or opinions of Acorns Grow, Inc., Acorns Securities, LLC or Acorns Advisers, LLC. Content is provided on an informational basis and should not be construed as investment advice. Individual circumstances will vary. Please consult a financial advisor before acting on any opinions expressed. Participation in the panel is voluntary. Editing of advisor responses is for brevity and clarity; no editorial privilege is exercised.