Market downturns are an inevitable part of investing, and while they can be unsettling, they also present opportunities for disciplined investors. Drawing on insights from Vanguard’s Principles for Investing Success, this article outlines strategies to help you build resilience in your portfolio and confidently navigate uncertain times.
1. Focus on What You Can Control
Vanguard emphasizes the importance of focusing on controllable factors rather than reacting emotionally to market fluctuations. This approach gives you a sense of control and empowerment. Key areas to concentrate on include:
• Asset Allocation: Ensure your portfolio is appropriately diversified across asset classes (e.g., stocks, bonds, cash) based on your goals and risk tolerance.
• Costs: Minimize investment costs; every dollar spent on fees reduces your potential returns.
• Discipline: Maintain a long-term perspective and avoid making impulsive decisions during market volatility.
Concentrating on these elements can reduce unnecessary risks and position you for long-term success, regardless of short-term market movements (Source: Vanguard Principles for Investing Success).
2. Diversify Your Portfolio
Diversification is one of the most effective ways to manage risk during a downturn. Vanguard highlights that a well-balanced portfolio spreads investments across asset classes, sectors, and geographies, reducing the impact of poor performance in any area. For example:
• Stocks and Bonds: A mix of equities and fixed income can provide stability while capturing growth potential.
• Global Exposure: Investing internationally can mitigate risks tied to domestic market conditions.
• Alternatives: Consider adding real estate or other alternative investments to diversify your holdings further (Source: Vanguard Global Investment Outlook).
3. Stay Invested and Avoid Emotional Decisions
One of investors' biggest mistakes during a downturn is selling assets in a panic. Vanguard’s research shows that staying invested through volatile periods often leads to better outcomes than attempting to time the market. For instance, investors who exited the stock market during the COVID-19 downturn in 2020 missed out on significant recovery gains shortly thereafter. By maintaining discipline and sticking to your investment plan, you can avoid locking in losses and benefit from eventual market recoveries.
By maintaining discipline and sticking to your investment plan, you can avoid locking in losses and benefit from eventual market recoveries.
4. Rebalance Your Portfolio When Necessary
Rebalancing ensures that your portfolio remains aligned with your target asset allocation as market conditions change. During a downturn, this may involve selling outperforming assets (e.g., bonds) to buy underperforming ones (e.g., stocks), effectively buying low and selling high. Vanguard advises investors to rebalance periodically or when their allocation deviates significantly from their targets (Source: Vanguard Principles for Investing Success).
5. Build an Emergency Fund
A sufficient cash reserve can provide peace of mind during turbulent times, allowing you to cover unexpected expenses without selling investments at a loss. Vanguard suggests setting aside three to six months of living expenses in an easily accessible account (Source: Vanguard Principles for Investing Success).
6. Keep a Long-Term Perspective
Market downturns are temporary, but the benefits of staying invested are long-lasting. Historical data shows that markets recover, rewarding patient investors with higher returns. As Vanguard notes, equities have historically outperformed other asset classes over the long term despite periodic declines (Source: Vanguard Global Investment Outlook).
Conclusion
Preparing for a market downturn requires discipline, diversification, and focusing on long-term goals. By following these strategies—drawn from Vanguard’s Principles for Investing Success—you can confidently build resilience in your portfolio and navigate challenging markets. Remember, downturns are part of the investment journey, but with proper planning and perspective, they can be opportunities for growth rather than setbacks.
Disclosure:
This article, "How to Prepare for a Market Downturn: Strategies for Resilience," is intended for informational purposes only and does not constitute investment advice, a solicitation, or an offer to buy or sell any securities. The information provided is based on publicly available resources, including Vanguard’s Principles for Investing Success, and reflects general market observations as of April 7, 2025.
Key Disclosure Points:
- No Specific Recommendations: This article does not endorse or recommend specific securities, investment strategies, or financial products. Readers should consult with a qualified financial advisor to determine the suitability of any investment strategy for their individual circumstances.
- Sources of Information: Insights referenced in this article are drawn from Vanguard’s Principles for Investing Success and other publicly available resources. Vanguard is not affiliated with the author or publisher of this article and has not endorsed its content.
- Material Conflicts of Interest: The author and publisher have no material conflicts of interest related to the information presented in this article. No compensation has been received from Vanguard or any other entity for the creation of this content.
- Forward-Looking Statements: Any forward-looking statements regarding market trends, asset performance, or investment opportunities are speculative and subject to change based on evolving economic conditions. Past performance is not indicative of future results.
Sources:
- Vanguard Principles for Investing Success:
https://ukd-ics.ecs.itlp.c1.vanguard.com/articles/latest-thoughts/investing-success/four-timeless-principles-for-investing-success - Vanguard Principles for Investing Success (PDF):
https://www.ch.vanguard/content/dam/intl/europe/documents/en/investment-principles-eu-en.pdf - Vanguard Economic and Market Outlook for 2025:
https://corporate.vanguard.com/content/corporatesite/us/en/corp/who-we-are/pressroom/press-release-vanguard-releases-2025-economic-and-market-outlook-121124.html - Navigating a Down Market - Vanguard:
https://investor.vanguard.com/investor-resources-education/news/navigating-a-down-market - Discipline May Be the Best Defense in a Downturn (PDF):
https://www.vanguard.co.uk/content/dam/intl/europe/documents/en/discipline-may-be-the-best-defence-in-a-downturn-gbp-en-end.pdf - A Conversation for Investors Concerned About Volatility - Vanguard:
https://investor.vanguard.com/investor-resources-education/article/a-conversation-for-investors-concerned-about-volatility - What to Do When Markets Drop - Vanguard:
https://investor.vanguard.com/investor-resources-education/article/what-to-do-when-markets-drop - How to Navigate Market Turbulence - Vanguard:
https://www.vanguardinvestor.co.uk/articles/latest-thoughts/markets-economy/how-to-navigate-market-turbulence
David Scully
David Scully has over 20 years of experience in investment research and team management. As President, he oversees the company’s daily operations and implements its strategic objectives. David holds the Chartered Financial Analyst (CFA®) and Certified Financial Planner (CFP®) designation. A graduate of the University of Georgia with a bachelor’s degree in economics, David is a proud Memphis native deeply committed to his community. He actively contributes to numerous organizations, holding leadership positions such as: • President, Board of Directors, Wolf River Conservancy • President, Board of Directors, Memphis Botanic Garden • Treasurer, Board of Directors, Assisi Foundation • Vice President, Board of Directors, Economic Club of Memphis • Member, Boards of Directors, University of Memphis Foundation, St. Agnes Academy, and CBHS Alumni Board David also serves on the Greater Memphis Chamber of Commerce’s Chairman’s Circle and Small Business Council. Previously, he was Treasurer for the University of Memphis Research Foundation Board and remains an engaged Young Presidents’ Organization (YPO) member. Beyond his professional and civic endeavors, David values his role as a husband to Michelle and father to their two daughters, Ruthie and Mae Carter. He is an enthusiastic coach who supports his daughters in basketball, soccer, and softball. Faith and family are central to David’s life, and the Scully family are active members of St. Peter Church.
Recent Articles
Let's talk about your future.
Connect with a local Duncan Williams Asset Management advisor
5350 Poplar Ave.
Suite 600
Memphis, TN 38119
