How to protect your savings while staying invested

Summary

• Market volatility is inevitable, but fleeing to cash or pulling out during downturns often means missing the market’s best days.
• Diversification spreads investments both across and within asset classes, while regular rebalancing enforces discipline by selling winners and buying underperformers at the right time.
• Market losses can actually lower your tax bill through tax-loss harvesting, but getting the timing right and following IRS rules takes careful attention to avoid mistakes.

Staying invested through uncertainty

Market turbulence can test the resolve of even the most disciplined investors. When headlines scream about declining portfolios and economic uncertainty, the urge to sell everything and retreat to cash can feel almost overwhelming.

Yet history shows that fleeing to the sidelines or hoarding cash often proves more costly than simply riding out the storm. The Standard & Poor’s 500 equity index’s 10 best days over 20 years all came during periods of market turmoil.¹

The fact is market volatility isn’t an aberration—it’s a fundamental feature of investing. Understanding this reality, and having a concrete plan to navigate it, can be the difference between reaching your retirement goals and falling short. Here are five strategies that can help safeguard your portfolio without abandoning your long-term investment plan:

1. Diversification remains your foundation. Spreading investments across different asset classes creates natural balance in your portfolio. When stocks stumble, high-quality bonds often hold steady or even appreciate, providing stability when you need it most. But true diversification goes deeper than simply owning both stocks and bonds. “You want to make sure you’re not just diversified between stocks and bonds, but within stocks and bonds,” says John Canally, chief portfolio strategist for TIAA Wealth Management. Depending upon your goals and risk tolerances, this may mean owning small-cap stocks in addition to large-cap stocks, utilities in addition to tech stocks, and international stocks in addition to U.S. holdings. The same principle applies to bonds—you’ll want exposure to different types of bonds, all in the right mix for your situation.

“In a portfolio, you always want to have something that’s working,” Canally explains. “Think of diversification as building a portfolio with multiple engines. If one sputters, others keep you moving forward.”

2. Regular rebalancing enforces discipline. Markets don’t move in lockstep, which means your carefully constructed portfolio can drift away from its target asset allocations over time. When stocks surge, they naturally become a larger slice of your portfolio. Rebalancing means selling some of those winners and reinvesting in assets that haven’t performed as well. It sounds counterintuitive, but this systematic approach implements a “sell higher, buy lower” strategy without requiring you to predict market movements.

The importance of systematic rebalancing becomes especially clear during volatile periods. “The times you’re going to need to rebalance are when things are going haywire,” Canally notes. “And if you say, ‘Well, I’m not rebalancing because it’s going to be different this time,’ that’s when you risk getting yourself into trouble.”

The key is maintaining a disciplined, repeatable process—whether that’s quarterly, annually, or when your allocation drifts beyond certain tolerance bands. Without regular rebalancing, your portfolio gradually strays from the risk profile you and your advisor carefully established, potentially exposing you to more volatility than you’re comfortable with.

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