Investments & Accounts

What Should I Do When Markets Decline?

A market decline can make a previously comfortable investment plan feel uncertain. It is reasonable to want a response. The useful response begins with what has changed in your household and portfolio, not with a prediction about tomorrow's prices.

Neither doing nothing nor selling everything is a universal rule. A structured review can separate immediate cash needs, a genuine planning problem, and an emotional reaction to headlines. No checklist can establish when markets will recover or guarantee that losses will be reversed.

This may be worth discussing if…

You are worried about paying bills from investments after losses
You are considering selling or changing your allocation quickly
A job loss, health expense, or other life event has changed your needs
You are unsure whether your holdings remain diversified

First, check upcoming cash needs

List bills, planned withdrawals, and larger expenses over the period that matters to your household. Identify cash and other readily accessible resources, including income outside the portfolio. Determine whether there is an actual funding gap rather than treating every lower balance as an immediate spending emergency.

If withdrawals are needed, discuss which holdings could supply them and the tax and allocation consequences. A reserve can provide flexibility, but depleting it without a replenishment plan simply postpones a decision. Borrowing to avoid sales also introduces costs and risks; it is not an automatic solution.

Next, separate market changes from life changes

Has your time horizon shortened because a purchase or retirement date is approaching? Money needed soon has different risk capacity from money intended for later years.
Have income, health, family obligations, or debt changed? A genuine change may justify revisiting the plan even if the market is also unsettled.
Have losses revealed concentration or risk you did not understand? Review underlying holdings rather than assuming every decline is ordinary diversified exposure.
Is discretionary spending adjustable? Consider realistic postponements without assuming every household can cut essential expenses.

Review the intended investment mix

Compare current allocation with the plan and examine concentration, liquidity, and investment quality. Diversification can reduce dependence on one exposure, but cannot prevent all losses. A holding may merit review because its role or risks have changed, not simply because its price has fallen.

Rebalancing can restore an intended mix by selling some exposures and buying others, or by using contributions and withdrawals. It is not a promise to buy at a bottom. Evaluate tax lots, trading costs, restrictions, and the risk of replacement holdings before making trades. In a taxable account, a loss-harvesting opportunity requires its own wash-sale review.

Avoid turning a response into a market-timing bet

Selling with the intention of returning later requires two decisions: when to exit and when to re-enter. Both involve uncertainty. News may feel reassuring only after prices have moved, while a further decline after buying does not prove that a plan-based purchase was necessarily mistaken.

Use an agreed review process rather than an unverified forecast, a social-media prediction, or pressure to act immediately. If your original allocation was unsuitable, discuss a deliberate revision and its trade-offs. Staying invested is not a guarantee of recovery, and discipline does not mean ignoring new facts.

Common questions during a decline

Should I stop portfolio withdrawals?

Essential expenses may still require funding. Review cash, other income, planned sales, and discretionary spending with your advisor. Reducing withdrawals can matter, but it is not practical or appropriate for every household.

Is a decline a reason to buy more?

Only if the purchase fits your allocation, liquidity, time horizon, and loss capacity. A lower price does not establish that an investment is suitable or that it will recover.

How soon should I revisit the plan?

Promptly if bills cannot be funded, circumstances have changed, or you do not understand your risks. Otherwise use a defined review schedule and action criteria rather than checking prices as a substitute for planning.

Things to consider

Both sides of the decision, laid out plainly.

A loss may be real even before a sale

An unrealized decline affects current wealth and flexibility. The tax distinction between realized and unrealized losses should not be used to dismiss investment risk.

Tax benefits are secondary

A deductible loss does not make an unsuitable trade useful. Review the portfolio purpose and execution costs as well as possible tax consequences.

Write down the reason for an action

A concise explanation—cash need, rebalancing, changed circumstances—helps distinguish a plan-based decision from an attempt to predict the next market move.

Questions to ask Rob

How are upcoming withdrawals funded if markets remain weak?
Has our allocation drifted or revealed concentration?
What specific facts would justify changing our plan?

Questions to discuss with your tax or legal professional

What are the tax consequences of contemplated sales?
Could replacement purchases create wash sales across our accounts?
Would realized gains or losses affect our other tax planning?

Key takeaway

During a decline, review cash needs, household changes, and portfolio risks before acting. Use a deliberate process while recognizing that future prices and recovery timing remain uncertain.

Still have questions?

Every situation has details a general guide can't cover. A short conversation is usually the fastest way to sort out what applies to you.

Start a Conversation

Sources: Investor.gov; Internal Revenue Service Publication 550. The checklist is educational, not an instruction to buy, hold, or sell a particular investment.

This material is provided for general informational and educational purposes only and should not be construed as individualized investment, tax, accounting, or legal advice. Individual circumstances vary, and strategies discussed may not be appropriate for every investor. Wealthspan Investment Management, LLC does not provide legal or tax advice. Clients should consult their attorney, tax professional, and financial advisor regarding their individual circumstances. Investing involves risk, including possible loss of principal.