The Market Just Dropped 20%

The situation

The market just dropped 20%, your balance is lower, and the urge to protect what remains is pushing you toward a decision your existing plan may not support.

The three-step answer

1. Do not sell because prices fell. Pause any reactive trade and stop checking the balance if repeated updates are driving the decision. Use What to do during a market crash and When not to change your portfolio as the immediate guardrails.
2. Check the allocation against the plan. Compare your current mix with the target in your investment policy, then decide whether any difference is ordinary portfolio drift or evidence that your chosen risk level never fit. Follow Your investment policy statement, Choosing your risk level, and Portfolio drift for that review.
3. Keep automatic contributions running. Continue the scheduled amount if your income, emergency fund, time horizon, and goals have not changed. Use Automatic investing, What you can and cannot control, and The order of operations for your money to keep the process intact.

Why this order

The tradeoff is that selling may reduce the discomfort of seeing the balance move, while it also replaces your long-term plan with a decision made after a large price change. Do not trade first because a 20% drop does not tell you what happens next.

Check allocation before changing contributions because your target, not the latest market move, defines the risk you intended to hold. If the target still fits, continuing the existing system avoids turning headlines and account balances into a new strategy.

Change the order if you need the money inside the next couple of years. In that case, selling the amount you need is correct because it should not have been invested for a near-term goal. Move that amount to an appropriate cash account using Where to keep short-term savings, without making a forecast about the rest of the portfolio.

Go deeper

• Market corrections
• Risk and return
• Why market timing usually fails
• Rebalancing
• Why you should probably stop checking your portfolio