American investors in 2025 are being hit from all directions — sharp losses in benchmark indices like the S&P 500, a rising 10-year Treasury yield, a soaring CBOE Volatility Index (VIX) and a depreciating U.S. dollar are all weighing on expectations.
“The U.S. market has recently experienced increased levels of insecurity and uncertainty,” explains Arne Noack, regional investment head of Xtrackers, Americas, at DWS Group. “The implementation of foreign policy that undermines long-established geopolitical alliances has shaken investor confidence.”
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At the root of this market turmoil is the Trump administration’s unpredictable approach to tariffs on global trade partners. On April 2, termed “Liberation Day,” a sweeping 10% baseline tariff was announced, with even higher rates applied selectively for specific nations based on trade deficits.
The move rattled markets and prompted a range of responses — some countries initiated trade negotiations, while others, like China, retaliated with tit-for-tat measures. The current situation remains fluid, with the administration recently walking back some tariffs by exempting key electronics like smartphones and computer monitors.
The result for investors is heightened volatility. Imagine being on the executive team of a major consumer electronics firm — one week your supply chain and margins are threatened, the next week they’re spared. That kind of uncertainty complicates everything from production planning to forward guidance, and when earnings forecasts become less reliable, investor confidence weakens and stock prices tumble.
Even a historic 9% intraday rally in the S&P 500 on April 9, sparked by President Donald Trump announcing a 90-day reprieve on reciprocal tariffs, wasn’t enough to pull the index into positive territory for the year. Odds are, if you hold U.S. equities, you’re sitting on at least some paper losses.
“While most portfolio performance measures focus on annual or quarterly returns, sometimes the true test of an investor’s intestinal fortitude comes in much smaller, bite-sized windows of time,” says Mike Loukas, principal and CEO of TrueMark Investments. “In reality, stock market returns can be lumpy rather than linear, and these instances often result in emotional buy and sell decisions.”
Although the tariff situation remains uncertain, your investment strategy doesn’t have to be. There are several time-tested principles that can help you weather the current storm and stay on track for long-term investment success.
“As someone who’s navigated multiple market cycles, I’ve found that recovery requires both analytical discipline and psychological resilience,” says Michael Ashley Schulman, partner and chief investment officer at Running Point Capital Advisors. “The most sophisticated investors I know view losses as tuition paid for market education.”
Here are some expert insights on how to recover from a loss in the stock market:
— When to stay the course and average down.
— When to cut a loss and re-deploy capital.
— How to tax-loss harvest a position.
— How to rebalance your portfolio.
When to Stay the Course and Average Down
If you own stocks, you need to understand that sometimes the collective fear of other investors — the invisible hand known as “Mr. Market” — will sometimes offer you lower prices for companies you own.
Knowing this, it’s important to accept that volatility is the price of admission for returns better than what you can expect from risk-free Treasury bills. In other words, investors are compensated for enduring the ups and downs of the stock market.
Take the S&P 500 for example. It’s a collection of 500 notable U.S. stocks screened for size, liquidity and earnings quality. While the recent losses may feel severe, they’re less alarming when viewed with the benefit of hindsight and a long-term horizon.
The S&P 500’s worst decline goes back to the 2008 financial crisis, when it fell as much as 55.2% from peak to trough. Despite that, the index eventually recovered. From Jan. 29, 1993, to April 11, 2025, the S&P 500 delivered an average annual total return of 10% with dividends reinvested. An investor who put in $10,000 at the start and held through every downturn would have $218,474.02 before taxes.
“Even significant drawdowns can look like mere blips when viewed on a multi-decade chart,” Schulman explains. “The investors who ultimately succeed aren’t those who avoid all losses — they’re those who develop the temperament to weather them.”
Even if you don’t own the S&P 500 directly, chances are you hold some of its top stocks or other blue-chip U.S. companies. As a whole, these businesses will grow earnings, pay dividends, buy back shares and acquire other businesses — shareholder-friendly actions that support returns. But you only benefit if you stay invested through the volatility.
Better yet, by internalizing two maxims — “this time it’s not different” and “this too shall pass” — you may even find the confidence to buy more of the companies you already own at more attractive valuations. All else being equal, paying less per dollar of earnings improves your long-term return potential.
If you were happily buying stocks during the bull market of 2024, now you have a chance to own more of those same companies at discounted prices. The tariff situation adds short-term uncertainty, but well-run, diversified businesses with strong profitability, capable management and solid balance sheets have weathered far worse and come out stronger.
When to Cut a Loss and Re-Deploy Capital
Warren Buffett once said, “Only when the tide goes out do you discover who’s been swimming naked.” Right now, tariffs are the tide, and overleveraged companies with weak profitability and undiversified business models are the ones most exposed to the downturn.
That’s not to say these beaten-down stocks can’t eventually become so cheap that they’re worth a second look. Benjamin Graham, the father of value investing, called this the “cigar butt” approach — picking up a stock with one last puff of value. But for the average investor, that often looks more like catching a falling knife.
“Cutting your losses can feel emotionally difficult, but investors shouldn’t be afraid to hit the eject button if a stock’s fundamentals have weakened,” Schulman says. “Think of your portfolio like an airplane — sometimes you need to shed weight to weather the storm and reach your destination.”
Take Peloton Interactive Inc. (ticker: PTON), for example, the connected fitness equipment maker known for its bikes and subscription-based workout classes. The stock is down 36.8% year to date and has cratered 80.4% over the past five years.
Peloton currently checks all the boxes of a falling knife: negative profit margins, shrinking year-over-year revenue, negative earnings and a negative book value. Yes, there will theoretically be a price at which even Peloton becomes too cheap to ignore, but if you’re searching for that moment, be prepared to endure more pain along the way.
With so many higher-quality companies trading at a discount right now, it’s perfectly reasonable for a Peloton shareholder to reassess the company’s long-term prospects and cut their losses. This frees up the capital to buy higher-quality stocks at rare discounts.
“We’ve seen people hang on to losing positions for years, holding out hope to eventually be right; this is rarely a winning strategy,” Schulman says. “To put it another way, you don’t have to eat the whole apple to realize it is rotten.”
[READ: How to Pick Stocks: 5 Things All Beginner Investors Should Know]
How to Tax-Loss Harvest a Position
Better yet, there’s a way to cut your losses and potentially reap meaningful tax savings — all while staying fully invested. This strategy is only available in taxable brokerage accounts, so if your unrealized losses are inside a Roth IRA or 401(k), it won’t work.
The strategy is called tax-loss harvesting. It involves selling an investment at a loss below your cost basis and then redeploying the proceeds into another security.
“Tax-loss harvesting can be a silver lining when the markets are turbulent,” says Lauren Wybar, senior wealth advisor at Vanguard. “Investors cannot control the inevitable ups and downs of the markets, but they can control when to lock in losses within their portfolio.”
Done correctly, this lets you offset capital gains elsewhere in your portfolio. If your losses exceed your gains, you can deduct up to $3,000 against ordinary income and carry forward any remaining capital losses to future years when you might have gains to realize.
However, there are two key rules to keep in mind. First, the IRS applies a “like applies to like” rule, meaning short-term capital losses must first offset short-term capital gains, and the same goes for long-term gains and losses.
More importantly, there’s the wash sale rule. You can’t sell a position like Peloton to lock in a loss and then immediately rebuy it within 30 days. If you do, the IRS disallows the deduction. That’s where tax-loss harvesting partners come in.
Instead of letting your cash sit idle or risking a wash sale, you could redeploy the capital into a stock that isn’t substantially identical. Finding suitable tax-loss harvesting pairs requires some nuance, but this is exactly where a financial advisor can add real value and peace of mind.
How to Rebalance Your Portfolio
Finally, for investors who had the foresight to diversify their portfolios beyond just U.S. equities, a market downturn can be a great opportunity to rebalance.
Suppose you originally set your allocation at 60% U.S. stocks, 30% international stocks, and 10% bonds. After this year’s market rout, that mix might now look more like 50% U.S. stocks, 35% international, and 15% bonds — meaning the asset classes that held up better now take up a larger slice of the pie.
Rebalancing means selling some of the assets that have appreciated beyond their target and buying more of those that have fallen below. In this case, a smart investor would sell enough international stocks and bonds and buy enough U.S. stocks to restore the original 60-30-10 mix.
Historically, this discipline has paid off. Using that exact portfolio allocation, an investor who rebalanced quarterly from Jan. 28, 2011, to Apr. 11, 2025, earned a 9.8% annual total return, while an investor who never rebalanced trailed behind at 9%.
“We typically advise rebalancing if the initial desired weighting shifts roughly 5% or more,” says Brandon Clark, director of financial planning at the Clark Group Asset Management. “However, depending on the client’s risk tolerance and distribution needs, that number can vary.”
In lieu of rebalancing bands, investors can consider a set rebalancing schedule. For instance, rebalancing quarterly on the first trading day of the month. Either way, the goal is to keep the process objective, removing emotion from the equation so you can systematically buy low and sell high.
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How to Recover After a Loss in the Stock Market originally appeared on usnews.com
Update 04/15/25: This story was previously published at an earlier date and has been updated with new information.
