You Can Win With Stock Market Losses!

You Can Win With Stock Market Losses! - Tyler Weaver - Fiology

Currently, in the beginning of March, stock market losses in the S&P 500 Index are around 10% since beginning 2022 near all-time highs.

We’re in the midst (some would say near the end) of the one of the longest U.S. bull markets in history.

Losses have been minimal. But at some point, the market will take back some (or a lot) of what it’s offered in the last 11 plus years. Are you prepared for it? Have you thought about it? Do you have a plan in place to mitigate, or better yet, profit from the losses?

Think of stock market losses as your ambivalent frenemy. With each stock market downturn comes negative and positive qualities. While it seems the stock market relishes in your anguish, it simultaneously presents opportunity. However, it is difficult to feel optimistic while you experience market losses.  

That’s what I want to talk about in today’s post.

Losses are part of the picture when investing in stocks, real estate, commodities, and other volatile assets. Investors who have been around for more than this bull market understand that very well. I’ve said it many times in the past. Risk and return are related. If you want higher expected returns, you have to be willing to accept higher than expected risk. There’s no way around it.

A history of stock market losses

As a financial advisor, I’ve been through three of the more significant downturns in the market. I started as a stockbroker in November 1987. Yup. That was a VERY long time ago. For those who weren’t around or don’t remember, on October 22, 1987, the market dropped 22% in one day. That was the unofficial introduction of “programmed trading” into the markets.

Programmed trading happens when traders set up electronic triggers, usually based on stocks or markets reaching a specific price, that automatically execute large-scale buying or selling of stocks. That’s what happened in 1987. The total loss for the period from August 1987 to December 1987 was 33.5%.

The next and more significant drop was from 2000 – 2003. During that period, which lasted 2.1 years, the market dropped -44.7% for an average annual decline of 24.8%. Many of you weren’t around for this one either.

I suspect most of you were around (at least alive) during the last major crisis of 2008. It started in 2007 and ended on March 9, 2009. We call it the 2008 crisis because that’s where most of the damage occurred. That bear lasted 1.3 years with a total market drop of 50.9%. With just a 1.3 year duration, that’s an average annual return of -41.4%!

Stock market losses are followed by stock market gains.

There are several things we can learn from the chart.

  • Periods of significant market gains follow periods of substantial market losses.
  • In most cases, the stock market gains that follow are much higher than the stock market losses that preceded them.
  • The average length of time of the gains following the losses is longer than the preceding average period of losses.

First, let me start with the disclaimer (don’t you hate these?) – past performance does not predict or in any way guarantee future returns or performance.

However, there are lessons to learn from looking at the history of the stock market.

  • Gains follow periods of losses
  • The time length of the periods of increase is longer than the preceding periods of loss
  • The percentage of gain (both cumulative and average annual) are higher than the previous periods of loss

What is the antidote for stock market losses?


You should NOT invest in the stock markets for short periods? It’s a lesson often forgotten by investors. It’s a lesson that can have severe negative consequences if ignored.


Let’s say you invested $50,000 in stocks 2007 with the intent on taking the money out for a downpayment on a new house. You put 100% of that investment into the S&P 500. You projected a “conservative” return of 7% which would turn into just over $70,000 in five years. Instead, that $50,000 lost half its value and is now worth less than $25,000.

If, on the other hand, you left the money invested during this current bull market, your $50,000 would now be worth somewhere in the neighborhood of $123,000. No one should invest in stocks and plan on using the money in five years. Stocks are long-term investments.

You can see in clear illustration what would happen to someone planning on buying a house with money they invested in stocks for five years. If you plan on using the money to buy something, keep it in a short-term, low risk (or FDIC insured) account.

The example also assumes no additional money came into the account. Had the investor added money during the 2008 financial crisis, the ending value would have been even higher. 

Be Fearful When Others Are Greedy and Greedy When Others Are Fearful

Warren Buffet

Disclaimer: Keep in mind, these are only estimates. We would need to know the exact date of the original investment and the exact date of the current value. We assume it was sometime in 2007 and no new money came into the account. Returns come from the First Trust chart listed above.

Beware of product manufacturers during stock market losses

Firms will try to convince you they have a better mousetrap and can get you a higher return without the higher risk that comes with them. Product manufacturers (mutual funds, ETFs, brokerage firms, etc.), produce these products most often shortly after a significant market drop.

They prey on the fear investors feel after enduring one of these adverse market events. It’s a textbook advertising strategy.

Numerous studies confirm that the fear of loss is two to three times higher than the joy that comes from the reward. Advertisers and investment product people know that. It’s no accident they produce most of these “risk management” products shortly after a significant market drop.

I was an advisor at a couple of those firms during two of those significant drops.

My goal today is not to predict when the next bear market or recession is coming. People much smarter than I have tried and failed at that numerous times.

My goal is to encourage you to think about what happens to your portfolio if the market drops by 20%, 30%, 40% or more. How will you deal with the paper losses? Will you panic? Invest more? Will you try to time the market and get out before it drops?

Investors have done all of these things in past bear markets. A precious few have lucked into success.

It reminds me of the old saying, “even a blind squirrel finds a nut once in a while.” The evidence suggests that no one has any long-term success at it.

My advice. Forget about trying any of those strategies. I’ll offer my thoughts on the best way to manage and profit from the losses you see on your account statements in a bear market.

Non-Correlated Assets

Anyone invested in the 2008 meltdown remembers how everything they owned seemed to go down at once. Investors who thought they had diversification quickly discovered they weren’t as diversified as they thought. Whether you had U.S., international, or emerging market stocks,  everything went down dramatically.

So what can investors do? Add non correlated assets. That means adding investments that tend to go up, or at the very least, don’t go down, when stocks fall.

Treasury and Government-Backed Securities

Treasury securities, either directly purchased or via funds and ETFs,  are not correlated with stocks. Those who had Treasuries and other government bonds in their portfolio had much smaller losses than those who didn’t. Corporate and high yield bonds did not provide the cushion that government bonds provided. If you’re invested in an all-stock portfolio, consider adding some Treasury securities.

Real Estate

Real estate is another asset class that is often not correlated with the stock market. If you have the cash and inclination to do so, rental properties can be an excellent real estate investment. You don’t have to watch them go up and down like the stock market. They are not liquid. You can’t sell them quickly for cash as you might impulsively do with stocks on a bad emotional stock market day. Depending on the market, they can provide nice growth without the volatility of stocks.

The opportunities in real estate are limited only by your capital, knowledge, and creativity. You may have even thought about renting out a room in your house for extra income. Before you jump in, just know there are so many different ways to build wealth using real estate. If interested, first do plenty of research and even find a mentor with proven success using the methods you envision for yourself. It will save you a lot of money and headaches.

One way to invest in real estate is through real estate investment trusts. Called REITs (pronounced REETS), these can be in the form of publicly traded or private securities. Publicly traded REIT’s are more income-oriented than growth. They are a good option for an asset that is not highly correlated with stocks.

Private REITs are another excellent option. These REITs have recently become available to smaller investors through crowdfunded REITs. One of the more popular options comes from Fundrise. They offer income, income and growth, and growth options. They’ve been around longer than most other crowdfunded REITs.

Keep in mind that these private REITs are not liquid. Access to your investment is limited. Count a minimum five year holding period for this money. Alternative non-correlated assets like real estate should be a small part of the portfolio for most investors. Along with government and treasury securities, they can offer a cushion to your portfolio in a falling stock market.

Rebalancing to Mitigate Stock Market Losses

Rebalancing is something we hear a lot about with little explanation about how/why it works. It starts with an asset allocation strategy. That strategy sets target percentages for each asset class in the portfolio (stocks, bonds, cash, etc.). At its core, rebalancing means selling assets that have increased above a target percentage and buying assets that have fallen below the target level.

Five Benefits of Rebalancing

  1. Can give you piece of mind – Having a system in place to manage the ups and downs of the market means you don’t have to look at your portfolio every day (at least it should). Knowing this should allow you to stay much more calm about your portfolio.
  2. You will systematically be buying low and selling high – And isn’t that the key to successful investing? You may not have the money to buy a few billion dollars of Goldman Sachs and a few other companies like Warren Buffet in 2008. But you will be selling funds that have gone above their limits and putting money into additional funds whose value has fallen.
  3. You will better manage your risk – Selling what looks like winners to buy what appear to be losers seems counterintuitive. However, if you follow this discipline, your portfolio will stay within the risk levels you decided worked for you.
  4. It will be easier to stay on track for your goals – Portfolios need to match a goal. Otherwise, the temptation to chase some arbitrary return may cause you to make bad decisions and make unnecessary changes to your investments.
  5. It will be easier to get through bad markets – Those with a system in place during the last financial crisis came out further ahead than those who didn’t. During that time, money poured out of stock funds and into Treasury and other government securities. Those with rebalancing in place did just the opposite. They were buying stocks and funds during that time while selling the fixed income that went up. That’s a textbook example of why it works.

Check out Fiology’s lesson on Diversification and Mitigating Risks for a broad discussion on this topic.

Final Thoughts on Stock Market Losses

Investing can be as simple or complicated as you want to make it. The best way to invest at the lowest costs is with index funds. Whether you are a newer investor just starting or a seasoned investor who’s been investing for decades, it pays to review your goals and strategies regularly.

Circumstances and life changes happen. The goals you set for your investments initially may have changed.

Never invest in stocks for the short term. Few ever win that way. The losses can be devastating. Short term money should not be in the market. Forget the return your losing. Think about the principle you could lose.

I am more concerned with the return of my money than the return on my money.

Will Rogers

Many investors got hit with heavy losses trying to chase returns from the hot stock or fund. It’s nearly always a losing proposition.

Take the long view. There is money to be made in the markets over long periods.

  • Set your asset allocation.
  • Put target high and low percentages around those targets.
  • Rebalance when they get outside those targets.

Then sit back and watch the “pouting pundits of pessimism” (a quote from Brian Wesbury) tell you how bad things are and how much worse they’re going to get. After all, bad news sells. Good news is not newsworthy. Turn off the financial press (unless it’s for entertainment), sit back and relax, knowing your plan is in place and you’ve set yourself up for the best chance of long term success.

By Tyler Weaver of

David Baughier

My passion for helping others led to the curation Fiology. Help me spread the message of Financial Independence by clicking a colorful link above and sharing this post on your favorite social platform. Thank you!

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