Five Ways to Safeguard Your Portfolio in Market Downturns

A roller coaster heads down a steep incline. — (Image credit: Getty Images)

Nothing is stable when it comes to the stock market. It’s constantly fluctuating, and a multitude of factors can impact its rise and fall.

According to the first consumer price index report of 2025, released on February 12, inflation hit 3% in January, defying economists’ expectations. As a result, the S&P fell 0.3%, the Dow Jones Industrial Average fell 0.5%, and interest rates spiked.

The markets have been up and down, significantly at times, ever since. In other words, the stock market is volatile. So what can you do to maintain stability in this ever-changing landscape?

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1. Keep your portfolio diversified

One of the most important things you can do for your financial portfolio is to keep it diversified. Spreading investments across various asset classes, such as stocks, bonds, real estate and cash, is one of the best strategies for managing risk.

To mitigate impacts from regional economic issues, consider going beyond the borders to invest in international markets. While it won’t eliminate risk entirely, as every investment includes risk, it can help cushion the blow when the U.S. markets dip.

Paying attention to sector diversification is another way to keep your portfolio diversified. Balancing investments across industries will help you avoid overexposure within a single sector.

2. Assess your risk on a regular basis

Life is always changing and so does the amount of risk you can afford to take. When you’re younger, you can typically afford to take more risk, allowing you to make more aggressive investments. But as you approach retirement, and your life and your income begin to slow down, so should those investments.

Periodically adjusting your portfolio to maintain your target asset allocation, reviewing your risk tolerance regularly, especially as you transition through various phases of life, and making the appropriate adjustments can help protect your nest egg.

Some examples of these “safe haven” assets include U.S. Treasury bonds, precious metals like gold and silver and cash reserves, which maintain liquidity to take advantage of opportunities during downturns.

3. Focus on the long-term perspective

Investors’ response to the hotter-than-expected January 2025 CPI report is the perfect example of what not to do. When it comes to the stock market, avoid panic selling. Downturns are often short-lived.

And more importantly, selling during a dip can lock in losses.

There are always some vehicles to protect the downside risk and still pick up equity index gains through investments, such as structured products, buffered UITs (unit investment trusts) and index annuities to name a few.

Depending on your investment goals, you could reallocate some of your traditional fixed-income investments into alternative investment vehicles that protect against downside risk while still picking up equity gains like the ones mentioned above.

You can also reduce the impact of market volatility by using dollar-cost averaging to invest a fixed amount regularly.

And don’t forget to focus on the fundamentals. Investing in quality companies with strong balance sheets and consistent performances will add another layer of protection.

4. Tap into tax efficiency

With tax season upon us, it’s a great time to discuss tax-efficient investment strategies you can take. Tax-loss harvesting is a common solution, essentially allowing you to offset gains with losses to minimize your tax liability.

With tax-loss harvesting, you’re selling investments that are down in value to offset the taxes owed on other profitable investments in your portfolio known as capital gains. Think of it as “harvesting” your underperforming investments and selling them at a loss to lower taxes owed on the gains you’ve made from other investments.

5. Stay aware and seek help when necessary

Knowledge is power. To protect your investments, it’s a good idea to regularly monitor market trends. Pay attention to economic indicators and market news that could increase volatility.

International conflicts, political instability, trade disputes and even natural disasters can all impact the stock market.

In addition to paying attention to the world around you, regularly reviewing your portfolio and consulting with a financial adviser can help you prepare for the unexpected.

It’s a good idea to seek professional guidance in times of downturn or through major life events to ensure your nest egg can withstand whatever life throws your way.

There are many more ways today to take your investment journey and make sure you reach your destination.

Maintaining financial stability

Managing your financial portfolio is a process. To maintain stability, it must be able to adapt to life’s changes.

Diversification, performing regular risk assessments, focusing on your long-term perspective, implementing tax-efficient strategies, staying informed and seeking professional guidance is the perfect recipe for financial stability in every stage of your life.

The views and opinions expressed herein are those of Joel Russo and do not necessarily reflect the views of CoreCap Investments, LLC or CoreCap Advisor, LLC, its affiliates, or its employees. The information provided here is not investment, tax or ﬁnancial advice. You should consult with a licensed professional for advice concerning your speciﬁc situation.

Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Joel Russo is a New Jersey native and has been in the financial services industry for more than 35 years. He is dedicated to helping his clients reap the rewards of a well-planned retirement. Unlike many financial professionals, Joel specializes in the retirement market, "the over-50 crowd” and has dedicated his practice to educating this community with workshops on topics relating to income from the right sources, taxes in retirement, RMD pitfalls and legacy planning.