Every market decline feels different while you are living through it. The headlines change, the cause changes, and the commentary is always urgent. What should not change is how your portfolio is managed.

That is why we decide most of our responses to a downturn before one starts. When stocks fall, we are not inventing a plan. We are following one. This article explains that process: the measures we watch, the rules we apply, the practical steps we take for clients, and the things we choose not to do.

This is not a market forecast. No one can reliably predict when a decline will start or end. The goal of a process is to make sensible decisions without needing to know.

Start with guardrails, not headlines

A guardrail is a pre-set measure that tells us when conditions are changing enough to act. We use a small number of them because too many signals lead to constant tinkering. The three we pay closest attention to are:

• The bond market. Changes in Treasury yields and the shape of the yield curve (the difference between short-term and long-term rates) often reflect what investors expect for growth, inflation and Federal Reserve policy.
• Credit spreads. This is the extra yield investors demand to lend to companies rather than to the U.S. government. When spreads widen quickly, lenders are worried about defaults, and that stress often shows up before it appears in earnings.
• The trend of the stock market. We look at whether broad indexes are holding above or falling below their longer-term moving averages. A trend is not a prediction, but a market in a persistent downtrend behaves differently from one having a brief pullback.

We also watch leading economic data, but we treat lagging data such as the unemployment rate with care. By the time job losses confirm a slowdown, markets have usually moved already.

No single measure triggers a change. We look for agreement among them. Even then, the trade-off is real: guardrails can give false alarms, and acting on one can mean missing part of a rebound.

When stocks fall, we are not inventing a plan. We are following one.

Rebalancing rules that do the hard work

Every client portfolio has a target mix of stocks, bonds and cash that reflects their goals and time horizon. When markets move sharply, that mix drifts. A stock decline can leave a portfolio holding less in stocks than intended, and more in bonds.

We use tolerance bands, meaning a portfolio is rebalanced when an asset class drifts a set amount from its target, rather than on a whim. In a downturn, this often means trimming bonds or cash and adding to stocks at lower prices. It is a disciplined way to buy when it feels uncomfortable.

The downside is that rebalancing into a falling market can mean buying before the bottom. That is why the bands are sized for each client's risk tolerance, and why we coordinate rebalancing with tax considerations in taxable accounts.

How this works across our strategies

Our investment management strategies apply the same principles with different levels of risk. Each is built for a different purpose, and none is immune to market losses.

Raising quality and adding short-term Treasuries

When our guardrails point to rising stress, one of the first adjustments is to raise the quality of what we own. On the stock side, that can mean favoring companies with strong balance sheets, steady cash flows and manageable debt. On the bond side, it can mean reducing lower-rated corporate bonds, which tend to fall when credit spreads widen.

Short-term Treasury bills and notes are a common destination for that money. They are backed by the U.S. government and have little sensitivity to interest-rate changes because they mature soon. The trade-offs: their yields change as the Fed moves rates, their income is reinvested at whatever rates prevail later, and they will not keep up with stocks when markets recover. They are a stabilizer, not a growth engine.

Tax-loss harvesting

A downturn creates an opportunity in taxable accounts. Tax-loss harvesting means selling an investment that is below its purchase price to realize the loss, then buying a similar, but not substantially identical, investment so the portfolio stays invested.

Realized losses can offset capital gains. If losses exceed gains, up to $3,000 per year ($1,500 if married filing separately) can offset ordinary income, and the rest carries forward to future years. The wash-sale rule disallows the loss if you buy a substantially identical security within 30 days before or after the sale, a 61-day window in total.

Harvesting is not free. It lowers your cost basis, which can mean larger gains later, and it adds trading. We coordinate it with your overall tax planning and your CPA.

Keeping cash ready for withdrawals

For retirees, the biggest risk in a downturn is often being forced to sell stocks at low prices to pay the bills. This is called sequence-of-returns risk: losses early in retirement can do lasting damage because withdrawals lock them in.

We address this by keeping a reserve of cash and short-term bonds sized to cover a set period of planned withdrawals. During a decline, income can be drawn from that reserve while stocks have time to recover. The cost is that cash held in reserve earns less over time than a fully invested portfolio. This is a core part of our retirement planning work.

Communicating with clients

A process only helps if clients understand it. During volatile periods we reach out proactively, explain what our measures are showing, and describe any changes we are making and why. We also review whether anything in a client's life has changed, such as a planned home purchase, a job change or a new income need, because that can matter more than the market.

What we deliberately do not do

• Panic selling. Selling everything after a large drop turns a temporary decline into a permanent loss and raises the hard question of when to get back in.
• Market timing on headlines. News moves fast and often reverses. We act on measured conditions, not on a single report or forecast.
• Abandoning the long-term plan. Adjustments are made within each client's target risk range, not by swinging from fully invested to fully in cash.
• Reaching for yield. We avoid moving into riskier, higher-yielding investments just to make up for losses elsewhere.

Some of these restraints have a cost. A rules-based approach will sometimes act later than a lucky guess would have. We accept that in exchange for consistency.

Frequently asked questions

Should I move to cash when the market falls?

Usually not entirely. Going to cash removes market risk but creates the risk of missing the recovery, which can come suddenly. Adjusting within your target range and keeping a withdrawal reserve is generally a more measured approach.

Does a defensive shift mean you expect a recession?

No. It means our measures show elevated stress. We adjust risk based on conditions, not on a prediction of what the economy will do next.

How often are portfolios reviewed during a downturn?

Our guardrails are monitored continuously, the momentum portion of Growth is rebalanced monthly, and allocation bands are checked regularly. Changes happen when rules call for them, not on a fixed calendar alone.

Can these steps prevent losses?

No process can prevent losses. These steps are designed to help manage risk and avoid costly reactions, but portfolios can and do decline in falling markets.