Financial Watch | August 2025

One thing we know for sure about the markets is that no one can predict with certainty how they will perform a day, a week, or a month from now. That’s why preparation—not prognostication—is a more reliable approach to weathering the market’s inevitable ups and downs. And one of the best ways to prepare for future market or economic events is by learning from the past.

While historic performance can’t predict future results, it can provide perspective and valuable lessons from remaining calm during periods of market turbulence, to the importance of maintaining an emergency fund, and following a strategy aligned with your goals. Below are four key takeaways from prior downturns that may better position investors to weather future economic storms.

1. Don’t panic

In late March 2020, the S&P 500 Index fell 34% from its February high, causing many investors to panic and bail out of the market, while setting the stage for what would become the shortest recession in U.S. history. Almost as quickly as it dropped, the market reversed course and by August 2020, the S&P was back to its previous highs.¹For the most part, those who did not panic and remained invested not only saw their portfolios recover but continue to grow in the months that followed. But it was a different story for investors waiting it out on the sidelines. Not only did many of these investors miss the market’s rally, but a large number bought back into the market as share prices were rising, purchasing fewer shares at a higher cost per share, which prolonged their time to recovery.

Maintaining a long-term investment mindset can make it easier to avoid impulsive decisions during sudden market drops or fluctuations. That begins with accepting downturns and recessions as a natural part of the economic cycle and acknowledging that they don’t last forever. They can even offer significant opportunities, such as the ability to purchase additional shares when stock prices decline. Investors in qualified plans like 401(k)s are well-positioned to take advantage of this through a strategy called dollar-cost averaging. Dollar-cost averaging occurs when investors purchase shares at set intervals, such as through regular retirement plan contributions. Over time, this helps to “average out” the price per share and promote long-term growth as investors purchase more shares when prices are low and fewer shares as prices rise.

2. Use boom times to prepare for a bust

It makes sense that those who have built a savings cushion should be in a better position to weather uncertainty than those who are already struggling to make ends meet. Having adequate emergency savings or other liquid assets to fall back on can help ensure bills and expenses continue to be paid in the event of a layoff or permanent job loss. It can also help to prevent those drawing down on their assets in retirement from cementing losses in investments with fluctuating values as share prices decline. Instead, retirees can temporarily draw from their emergency savings or cash reserves, allowing their long-term investments time to recover.

3. Live within your means

The importance of living within your means—especially when it comes to housing costs—was a key takeaway from the Great Recession of 2007 - 2009. In the years leading up to the global recession, questionable lending practices led to banks issuing adjustable-rate mortgages to individuals with poor credit histories (subprime mortgages) at low initial interest rates. This led to widespread defaults and foreclosures as rates adjusted upwards and borrowers couldn't afford the higher mortgage payments. 

Many of these same homeowners had little savings and were saddled with high credit card, auto, and student loan debt, making it nearly impossible to dig out from under this mountain of debt as the housing market fell. Managing spending to avoid high levels of debt is not only important for weathering an economic downturn but can lead to longer-term financial stability. While reigning in spending to live within your means can be hard, adhering to a budget and establishing spending alerts can help you gain control over savings and spending, allowing you to establish a stronger financial foundation that you can continue to build upon.

4. Put a strategy in place

Without a strategy, it’s impossible to know if you’re still on track or veering off course when the markets or economy hit a rough patch. That can lead you to make poor decisions that may not be in your best interests. A personalized strategy aligned with your goals, timeframe, and tolerance for risk is designed to do the opposite. It can help you to maintain a long-term mindset and avoid making reactionary decisions every time there’s a hiccup in the economy or an uptick in market volatility. Working with a financial professional to develop a strategy tailored to your needs can provide confidence that your assets are positioned to weather a wide variety of market and economic conditions as you pursue today’s goals and tomorrow’s lifetime income needs.

To learn more about strategies to help protect and grow your assets in any economic climate, contact the office to schedule a time to talk.

^{1) Pisani, Bob, “One year ago stocks dropped 12% in a single day. What investors have learned since then.” 16 MAR 2021, CNBC.com, https://www.cnbc.com/2021/03/16/one-year-ago-stocks-dropped-12percent-in-a-single-day-what-investors-have-learned-since-then.html}