Investing in the stock market comes with its ups and downs. If you’re an investor or trader, monitoring market trends and staying informed about your portfolio is crucial.
But what should you do when the market is down and continues to decline?
Understanding Market Declines
As of this writing, the Philippine Stock Exchange Index (PSEI) has fallen nearly 16% from its all-time high of just over 9,000, making it one of the worst-performing markets globally. Several factors have contributed to this decline, including rising oil prices, interest rate hikes, and high inflation rates.
Market analysts, like Manny Cruz of Asiasec Equities Inc., warned that things could get worse before they improve. According to Cruz, who has over 20 years of experience covering the local stock market, the first-quarter earnings season poses another risk, and the market’s loss of over $30 billion in value could potentially escalate.
With this uncertainty, many investors find themselves on edge. If you’re seeing red in your portfolio, you may feel the urge to sell. However, before making any rash decisions, take a step back and analyze the situation rationally.
Here’s what you should do when the market is down:
1️⃣ Keep Your Emotions in Check and Stick to Your Investment Plan
Market volatility can trigger emotional responses. When stocks are rising, we feel optimistic and eager to buy. But when they drop, panic sets in, and we’re tempted to sell in fear of losing more money.
However, making impulsive decisions based on emotions often leads to mistakes.
Legendary investor Warren Buffett advises: “Be fearful when others are greedy and be greedy when others are fearful.”
Similarly, Marvin Germo, a well-known Filipino stock market expert, cautions against emotional investing: “Disregard your emotions. Your emotions will make you panic and force you to either buy or sell rashly.”
If you have a solid investment strategy, stick to it. Avoid making knee-jerk reactions to market fluctuations and remember that investing is a long-term game.
2️⃣ View Market Fluctuations as an Opportunity
Instead of seeing a declining market as a disaster, view it as a chance to buy quality stocks at discounted prices.
Bo Sanchez, a financial mentor and founder of the Truly Rich Club, encourages long-term investors to take advantage of market dips. If you’re practicing Peso Cost Averaging (PCA), downturns allow you to buy more shares at lower prices, ultimately lowering your average cost per share.
In fact, this could be the perfect time to increase your investments. If your budget allows, consider doubling up on your stock purchases while prices are low. This strategy can amplify your gains when the market eventually rebounds.
As Cullen Roche, a financial expert, humorously puts it:
“The stock market is the only market where things go on sale and all the customers run out of the store.”
Market fluctuations are normal. Instead of fearing them, learn to leverage them to your advantage.
3️⃣ Focus on Long-Term Growth
The stock market may experience short-term highs and lows, but history shows that over time, it follows an upward trajectory. Investing requires patience and a long-term mindset.
If you invest in solid, fundamentally strong companies, your portfolio is likely to recover and grow in value in the long run. Avoid fixating on daily price movements and instead, focus on your financial goals and investment timeline.
4️⃣ Only Invest Money You Can Afford to Leave for the Long Term
One of the key principles of investing is to use money that you won’t need in the immediate future. Market downturns can be stressful, but they become even more distressing if you rely on that money for short-term needs.
A good rule of thumb is to invest funds that you won’t need for at least 5 to 10 years. This allows your investments the necessary time to recover from market downturns and grow.
5️⃣ Diversify Your Investments
If a significant portion of your portfolio is concentrated in just a few stocks or a single asset class, you may be more vulnerable to market downturns.
Diversification helps mitigate risk by spreading your investments across different sectors, industries, or even asset classes (e.g., stocks, bonds, real estate, and mutual funds).
By having a well-balanced portfolio, you reduce the impact of volatility in any one investment.
6️⃣ Don’t Lose Sleep Over Market Volatility
Investing should help you build wealth, not cause unnecessary stress. The stock market has always been cyclical, with periods of decline followed by recovery and growth.
No matter how steep a market decline may seem, history has shown that markets eventually bounce back stronger than before. If your investments are aligned with your financial goals and risk tolerance, you don’t need to constantly worry about short-term losses.
Final Thoughts: Stay Calm and Invest Wisely
Market downturns are an inevitable part of investing. Instead of panicking, take a step back, evaluate your investment strategy, and make rational decisions.
Key Takeaways:
✅ Keep your emotions in check and avoid making impulsive decisions.
✅ View market dips as buying opportunities rather than reasons to panic.
✅ Focus on long-term growth and avoid fixating on short-term fluctuations.
✅ Invest only what you can afford to leave in the market for several years.
✅ Diversify your portfolio to minimize risk.
✅ Don’t stress over market volatility—historically, markets recover over time.
Above all, remember that the stock market is just one of the many ways you can grow your wealth. Trust the process, stay patient, and remain confident in your long-term financial plan.
Happy investing!
This is a very useful and a great post that all investors should read before making impulse decisions. I must admit, I don’t have huge experience with the stock market however it is an area I would love to learn more about and so I will be sure to check back in on your site for that. Keeping your emotions in check is a great piece of advice but is there ever a time for impulsive decisions within trading?
Thanks for your comment Benji,
I am not a trader but I know some people who lost a lot of money in the stock market because they let their emotions dictate their decisions instead of sticking to their trading plans. Nobody can accurately predict the market. That’s why even professional full time traders have a plan and stick to it. At times when they make trading decisions based on impulse, they will not go all in; they will only bet an amount that they’re willing to lose in case things will not go as expected.
I hope that helps.
I also read your article on How to start Investing because I would like to seek your recommendations for brokers. I have two close friends who lost a significant amount of money in stocks, don’t have much of a detail of what happened but they’re both blaming their brokers somehow. Although I haven’t given much attention to it before, your article made me want to review and look into it. I do believe that anything can be learned if we take the time to learn. Once I do start, I will keep coming back to this site and maybe join The Truly Rich Club as well. Both your articles are very informative and helpful. Keep it up.
Thanks for stopping by.
Most people who lost their money in stocks are traders because trading is like gambling; you don’t know exactly if the stocks you will buy today will still be attractive for buyers tomorrow or in the next few days. I am not a trader, I’m an investor. I buy shares of companies that have the potential to grow in the future. And as an investor, I am not affected by the fluctuations that happen in the stock market because I know that the market is sure to bounce back.
I really recommend that you start investing in the stock market because aside from growing your money, you are also helping the country’s economy by investing.
I enjoyed reading this article. I was recently scammed by a stock market company, but thankfully I was able to get my money back through my bank, though it took a long time. I’m glad to see some genuine and helpful information here. I like your quotes and explanations. I particularly like “buy when others are fearful and sell when others are greedy.” Thank you for the info.
Hey Ruth, thanks for your comment. I’m not sure how one gets scammed by a stock market company because as long as your broker is legit, there shouldn’t be a problem. And one more thing, every company who wants to offer stocks or shares to the public goes through some kind of screening by the stock exchange before they are able to do so. But I guess there really are a lot of individuals or group of people who take advantage of others who want nothing but earn some money.
Often times, investors and traders tend to panic and worry when the stock market goes down and out of fear to lose all their investments, they sell their shares at a loss. But for investors who are in this for the long haul, they choose to buy more because they know that they’re buying shares at discounted prices. And when the market bounces back, their investment would have earned much more.