If you’re aware of the news lately (and I’d be shocked if you weren’t) markets have turned bearish and commodity prices have risen sharply, basically turning the dynamics upside down compared to where they were in 2025. It’s a trend driven by the military action in the Middle East, whose long-term impacts and ultimate conclusion are greatly in doubt at this time. Hence, it’s unclear when things will turn around and stock markets will once again become bullish (meaning that stock values will once again continue rising) and gasoline prices will come down. Welcome to the world folks. The little people (which is just about all of us) never know when the great powers will make moves that turn the world upside down. We also never know (for sure at least) when things will go right-side up. So welcome to the proverbial rainy day. This being a time when prudence reigns over risk taking and when the people who eschewed the proverbial financial umbrellas (those are for losers, right?) are drenched in fear for their financial future. The thing is that everyone needs a financial umbrella because as many people are learning now, and I’ve learned over decades of saving and investing that the rainy day ALWAYS comes eventually.
Now if you look at media coverage of financial topics in this time you’ll find lots of opinions, as always, of what investors should do next. Most of that coverage promotes a changing strategy to meet changing times. As far as I’m concerned such advice only makes sense if you’re one of the (far too many) people who think that prudence in terms of investing is for losers and wimps. What I will be doing, as I’ve always done, is to stay the course and continue to buy low cost index mutual funds at regular intervals, thereby taking advantage of good old Dollar Cost Averaging (DCA) which, over time, will more than offset any temporary paper “losses” for the mutual fund shares that have reduced in value. For 25 years I’ve purchased in down market and I’ve purchased in up markets, only selling shares when money was needed and I couldn’t cash flow a cost out of my salary or other cash savings. A great example of this was cashing in mutual fund shares when I needed a down payment for a primary residence. Another example was when an older vehicle of mine ceased to be reliable and I decided to buy a new car for cash. These examples are the exception rather than the rule though. Most mutual fund shares that I have purchased years ago I still hold, and market downturns like the current one have only deigned to chip away a small amount of my returns on those shares. Even then, that’s just on paper. In real terms the only loss taken when the value of a share falls is if a person panics or is otherwise forced to sell that share at a loss. Sometimes that is truly necessary but usually only if a person has failed to consider a financial umbrella in the event of a rainy day. More about that follows.
Given that the rainy day ALWAYS comes and we never know when it will come, it’s prudent to protect yourself which is easy to do so but requires the cornerstone traits of patience and discipline. The first step to building a solid umbrella involves acknowledging that you are not infallible when it comes to investing decisions and that the forces that move market are totally out of your control. If you refuse to acknowledge that then go no further. If you think that you have the market and its dynamics licked then you’ll certainly be reckless and foolish and will, eventually, take major losses. You might learn your lesson then but it will be too late to save you from that financial pain. If you acknowledge your fallibility then you’re ahead of a majority of individual investors operating in the markets. In that case you will be happy to always maintain a cash buffer to prevent you from having to sell large amounts of shares against your will in a down market. How much of a cash buffer you retain depends on your risk tolerance but I say an average of six months of expenses (assuming you’ve developed a realistic budget) is a great place to be. Holding on to cash in checking, savings or even a money market account that’s guaranteed not to lose value does have a cost to it since inflation will eat away at the value of that money but consider it insurance and insurance always costs something. In this case the insurance is worth the cost. Ask someone whose been forced to sell in a down market due to all of their money being invested.
The cash buffer should only be your first line of defense against market downturns. The second step is to avoid risky market strategies that amplify losses when markets head south. Some examples of risky strategies include buying shares on margin, buying single stocks, trading stock options, owning leveraged funds and investing in private equity. For various reasons the aforementioned strategies can seem like some kind of magic when markets are heading north but they will definitely seem like a special kind of hell when markets head south. It’s also prudent to avoid any type of trading behavior where you attempt to sharp shoot the value of stocks so that you buy when you think that the value is right and plan on selling soon after when the price rises…if it rises. Most professional traders lose money, but many individual investors also a lured to it at times to try to make a quick buck so they might ease the pain of recent paper losses. Such strategies often turn paper losses into actual losses that are more than people want to bear. I could write more in this paragraph but I would be repeating myself compared to a post I’ve already written titled Safe Investing Tips. See that post for more detailed information. You’ll be glad that you did!
If you follow the first two steps or maintaining a cash buffer and avoiding risky market strategies you will be ahead of may people who are involved in the markets during a downturn. There is more that you can do to protect yourself though. This advice may be hard to take but I did this during the 2008-2009 market crash and seventeen years later I’m so glad that I did. Continue to invest per your long-term plans. Assuming that you’re not borrowing money or eschewing your emergency fund in order to invest keep on keeping on. Slow and steady investing wins the race over time. Don’t be the person who decides to keep their money on the sidelines because they read it’s the smart thing to do in some financial article that was probably written by AI. Most people are awful at timing the market and if you break your habit of regular investing you may regret that when mutual fund prices turn around when you least expect them to. Also, don’t be the person who decides to put all their free cash into stocks or mutual funds because the market is on sale. While it’s true that stocks and mutual funds are discounted in times like these that shouldn’t give a person license to get reckless. If after taking honest stock (no pun intended) of your finances you find that you’re more heavy in cash then you need to be, then buy a low-fee broad market index fund if that’s what you want to do. But keep in mind any costs in the next year or so that may require a cash outlay before increasing your investments.
I know that the advice above can be really tough to take, especially when so many voices are screaming for investors to do something. Tune out that noise. An true investor is someone who accumulates for the long-term understanding that there will be market ups and downs but that over the long run values will increase significantly. So I prefer what may seem like contrarian advice in these times. Don’t just do something. Stand there! I’m speaking from experience of a person who had built a nice seven figure portfolio over these past 25 years that included the end of the dot-com boom and the 2008 housing crisis.
The final point I’ll make in terms of building a solid financial umbrella to help protect you from market downturns and tough times in general is to avoid using debt to fund your lifestyle. Way too many people utilize debt as a way to live larger than they really should and way too many people use debt as a way to maximize their investments. Rather than repeat myself (too much at least) read my prior post Falling For The Debt Trap to understand why this is so important. When your investment values are down and gas prices are up all of a sudden even what people consider to be reasonable interest rates (like 4%-8%) hurt bad. The more debt you carry the more you are exposed to financial stress when the rainy days come. I’ve been there. It makes it hard to sleep at night. It strains personal relationships. Heck, it just plain sucks! But the honest truth is that we often do it to ourselves. You don’t build financial security by paying interest to someone else. Most people fail to understand how true that is.
I understand that you might be in the midst of tough times right now and unable to get completely on top of your financial situation. That’s okay. Do what you can each day to create a situation where you’re protected. Forget about what everyone else is doing. If you do what everyone else does then you’ll get the results that everyone else gets. Whoever coined that phrase is a genius! This rainy day will eventually pass but there will be others. Follow the advice above and you’ll be ready for it.
In The Midst Of A Journey 