Stock market declines are a regular feature of investing, not a rare malfunction. According to Hartford Funds’ analysis of Ned Davis Research data through 2025, the S&P 500 has gone through 27 bear markets (drops of 20% or more) since 1928. That’s roughly one every three and a half years. The average one lasted about 289 days, under ten months, and took the index down about 35%.
Some were much worse, and some recovered much faster. In 2020 the S&P 500 fell about a third in roughly a month as the pandemic hit, then regained its previous high by that August. The 2007–2009 decline cut the index by more than half, and it took until 2013 for prices to get back to where they’d been. Nobody knows in advance which kind of drop they’re in. That uncertainty is the whole problem, and it’s why the decisions you make before a decline matter more than the ones you make during it.
Key takeaways
- Declines of 20% or more have happened about every three and a half years on average since 1928.
- Selling after a drop locks in the loss and leaves you with a second hard call: when to get back in.
- Many of the market’s strongest days have come during bear markets, so stepping out risks missing the rebound.
- Money you need within a few years shouldn’t be in stocks in the first place.
- A drop can be a chance to rebalance and to harvest tax losses in taxable accounts.
- If you keep contributing, a decline means your regular deposits buy shares at lower prices.
Why selling feels right and usually isn’t
Watching an account fall 25% is genuinely painful, and the urge to make it stop is human. Selling does make the falling stop, for you. It also turns a paper loss into a real one and creates a new problem: deciding when to buy back in. People who sell in a panic rarely get a clear signal that it’s safe again. Markets tend to turn up while the news is still bad, and by the time things feel calm, prices have often climbed a long way.
The same Hartford Funds data shows how tightly the best and worst days are bunched together: about 42% of the S&P 500’s strongest days over the last 20 years came during bear markets. Missing even a handful of those days can take a large bite out of long-term returns. An investor who sells near the bottom and waits for things to “settle down” is almost guaranteed to miss some of them.
What to do instead
Check whether your money is in the right place
The real question in a drop isn’t “will the market recover?” It’s “when do I need this money?” Retirement savings you won’t touch for 15 years can ride out a bear market. A house down payment you need next spring should never have been in stocks. If a decline exposes money that was in the wrong bucket, move it to safer ground after thinking it through, not in the first panicked hour, and for future goals, keep short-term cash in savings, CDs or Treasury bills.
Rebalance back to your target
If you aimed for 70% stocks and a decline has pushed you down to 60%, rebalancing means selling some bonds and buying stocks at lower prices. It feels backward, which is exactly why a rule written in calm times helps. Our guide to rebalancing your portfolio covers the mechanics and how to keep taxes down.
Keep the automatic contributions running
If you invest on a schedule through a 401(k) or a monthly transfer, a lower price means your same dollars buy more shares. Pausing contributions during a decline is one of the quieter ways people hurt their long-term returns. The logic is laid out in our piece on dollar-cost averaging.
Harvest losses in taxable accounts
If a fund in a regular brokerage account is worth less than you paid, you can sell it, realize the loss and immediately buy a similar but not substantially identical fund to stay invested. The loss can offset capital gains, and up to $3,000 a year of excess loss ($1,500 if married filing separately) can offset ordinary income, with the rest carried forward. Watch the wash sale rule: buying the same or a substantially identical security within 30 days before or after the sale disallows the loss. The IRS covers the details in Topic 409. None of this applies inside an IRA or 401(k).
Look at your emergency fund, not your portfolio
Market drops sometimes arrive alongside layoffs. The best protection against being forced to sell stocks at a low is enough cash to cover several months of expenses. If yours is thin, building it up is a better use of nervous energy than watching the ticker.
What not to do
- Don’t make a big move on the worst day. If you feel you must act, wait a week and write down your reasoning first.
- Don’t borrow from your 401(k) or stop contributions just because the balance fell, unless you actually need the cash.
- Don’t try to “make it back” fast with leveraged funds, options or concentrated bets. Losses compound in the wrong direction too.
- Don’t check your account every hour. Frequent checking makes normal volatility feel like an emergency.
- Don’t treat every market forecast as news. In a decline, confident predictions in both directions multiply. Few of them are right consistently.
If you’re close to retirement
The math changes when you’ll start withdrawing soon. Selling stocks to pay living expenses during a decline does lasting damage, a problem often called sequence-of-returns risk. Many people approaching retirement hold a few years of planned withdrawals in bonds and cash so they can leave stocks alone through a bad stretch. If a drop reveals that your mix was more aggressive than your timeline allows, that’s worth fixing once markets calm, and our article on asset allocation by age is a reasonable place to start.
Staying the course
Staying the course doesn’t mean ignoring what’s happening. It means deciding in advance what you’ll do, then doing it when the moment comes. Write down three things on a calm day: your target mix of stocks and bonds, how much cash you keep outside the market, and what drift will trigger a rebalance. When the next decline arrives, and history says it will, you won’t have to decide anything from scratch. You’ll check your plan, rebalance if the numbers say so, keep contributing and let time do the work.
