How do you invest in a down or turbulent market?

The short answer: Plan ahead and be willing to ride out the storms.

Investing in a turbulent market is like steering a ship through rough seas ...

Before any journey, you prepare your ship. Depending on the number of people on board and the length of the journey, you pack food and provisions, stock up on fuel, and plan for possible emergencies like heavy winds, rain, and intense waves. A plan can help you navigate these intense conditions but can’t guarantee your ship won’t get damaged or might sink in the storm. Balancing the weight onboard, understanding how to navigate the waves and manage the wind, and ensuring the people onboard understand how the ship moves during turbulent times are all parts of a good plan.

A financial plan is like a compass… It helps guide you toward your goals, like a beacon.

Imagine your first piggy bank. You put change in it each week to save up for fresh kicks or a new video game. A financial plan is a more complex version of putting coins in a piggy bank, but the core concept is similar — You set a goal and continue to save or invest what you can over a period of time to achieve it.

Regardless of market conditions, it’s helpful to ask yourself what you’re saving or investing for. A rainy day fund? A vacation? Retirement? To pay off debt? All of the above? Whatever the answer is, identifying your reasons for saving can help you clarify how much money you need and when you’ll need to use it. Typically this should include a mix of short- and long-term goals. It’s like assigning your money different jobs. Some jobs, like saving up for a trip, may need to get done within one year. Others, like paying off your student loans or saving for retirement, may take decades to complete. Whether you’re investing for the first time or have been doing it for years, knowing your savings goals can help guide where you put your money and how to make it work for you.

Automate your payments or contributions, so that you don’t have to think about them.

Once you have a plan, you can decide how you should invest your savings. Maybe you want to start making payments to whittle down your credit card debt. Maybe you want to take advantage of the fact that your employer offers to match your retirement contributions. Whatever your priorities are, it’s helpful to create a schedule to make payments over time, whether it be once a week or once a month.

The key is to stay consistent. The good news is the process is easier than ever. Nowadays, you can typically automate your payments or contributions at the pace you want, without having to remember to make payments each time. Thanks to the internet, most bank transactions can be made from your phone or computer, so you can likely do all this without having to go to a bank.

The other helpful thing to remember is that it’s better not to obsess over your long-term payments or contributions. Markets can take time to recover from downturns, but they have a history of resurging over cycles. Still it can be hard to stay the course since it is unknown how long a recovery will take. This is why, when it comes to long-term investing, it may be a wise strategy to avoid reacting to the market, and stick to a longer-term plan. That being said, it’s a good idea to continually reassess your strategy, and be willing to adjust how much you’re contributing, and to what, depending on your specific investing goals and risk tolerance. Of course, automated investing does not guarantee a profit or prevent losses.

Your financial needs, age, and risk tolerance can all shape how you invest.

Once you have a financial plan in place, you may want to think through where you want to put your money. The answer will depend on your goal. For example, if your highest priority is to pay off debt, you may want to start by making automatic payments on your student loan, mortgage, or credit card. If saving for retirement is your top priority, you may want to start contributing to a 401(k) or an IRA.

If you’re investing in the market, at some point you may need to decide how to distribute your investment across different asset classes. How much of your contributions will go into stocks, as opposed to bonds or real estate, for example? You can help make these decisions based on your short, mid, and long-term financial needs, and how much or how quickly your investment grows. But other factors, like your age and risk tolerance, also usually affect how you allocate your investments.

We’re only human, and for many people investing in the market can also be emotional. It’s helpful to understand your temperament in addition to your financial circumstances. Generally speaking, how much risk can you tolerate? Are you someone who might get anxious during downturns and get tempted to pull out your investments? Or can you ride it out with the belief that the market has a history of climbing back up? Depending on the answer, you may decide to invest a higher percentage of your portfolio into stocks. Stocks are often more volatile an asset class than bonds, but they may also be more likely to yield higher returns over time. (It’s important to note though that bonds can be volatile especially in reaction to changes in interest rates. In many cases, the stock market is up when the bond market is down, and vice versa, hence the appeal of holding both to manage risk).

Don’t keep all of your eggs in one basket. The more baskets, the more you can manage your investments’ risk.

Imagine you have pet chickens and you’ve just collected a basket full of eggs that you need to incubate. You enter a room full of incubators, and you’re trying to decide which ones will be best to hatch into healthy chicks. The traditional incubators are safe and reliable, but it may take weeks before your eggs will hatch. The newer, experimental models can make your eggs hatch in just a few days, but there’s a high risk of the eggs dying along the way. Which one will you choose?

You may find yourself answering that a mix of both would be most sensible. Maybe time is not an issue and you can place most of your eggs in the traditional incubators, while putting a handful of eggs into the newer models out of curiosity. Or maybe you need the eggs to hatch quickly, and are willing to take a chance on placing most of your eggs in the newer incubators, while keeping a few in the traditional machines just in case.

The same logic applies in investing. Stocks and bonds are two of several asset classes, and within each class there are many sectors to choose from. You may decide to invest more money in one class or sector over another depending on your financial needs, timeline, and personality. The important thing is that you have enough of a mix so that if one class or sector takes a hit, the rest of your investments may not be as impacted or even potentially grow. Bear in mind, it could be that your mix does not pan out and all of your choices lose principal – Diversification does not ensure a profit or eliminate the risk of investment losses.

The good news is that you don’t have to think too hard about how to come up with the right balance. You can invest in pre-made packages made up of a variety of asset classes or sectors, like mutual funds or ETFs. These funds are typically managed by professionals for an annual fee. You can also work with a professional, like a financial advisor (a professional who’s legally required to act within your best financial interests), to help manage a more customized portfolio. Likely you will pay more for this service, though, so be sure to do your homework before making a commitment. The takeaway is that you have options. With a little research, you can decide which approach works best for you.

When in doubt, stick to the plan and stay consistent.

One good thing to know about the market is that upswings and downswings are expected. In many ways, they’re a natural part of how markets work. The markets have a long history of rising and falling in cycles. The key to a long-term strategy, is to play the long game. That’s why making a financial plan ahead of time is beneficial; when turbulence strikes, a good plan can help you stay level-headed and focused on the bigger picture of your investment goals even while experiencing significant losses.

Likewise, it’s helpful to remember the bigger picture of market swings. The swings may look volatile year to year, but when you zoom out and look at market trends over decades, you can see a steadier trend. When in doubt, less is more. Generally speaking, staying consistent with a good plan can help any investor ride out stormy weather. Bear in mind nobody knows when or if the markets will recover, so this can be easier said than done.

It’s always a good idea to take some time to understand different factors that can affect the market and investment strategies. These include interest rates, investment horizons, dollar-cost averaging (investing the same dollar amount into a fund or stock at a regular cadence), target retirement funds, and more. The more you know, the better position you’ll be in to manage your portfolio, no matter the market weather.

Although it’s great to create an investing plan, it’s important to regularly assess your strategy, because it’s possible that your investing goals and risk tolerance could change over time. Although sticking with a plan may be strategic for mid- to long-term investing – and can help prevent you from sinking your ship – you may decide that you’d like to incorporate higher risk investments into your strategy. Likewise, it could be that when you experience market volatility for the first time, you might realize that you are not as much of a risk taker as you thought, which could lead you to create a lower-risk portfolio, that’s more diversified and intended for the long-term. Reallocating your portfolio in a systematic way in calmer markets might be better than panic selling in the next downturn.

Investing means you are venturing into some unknown territory so you have to go in knowing you might be successful like Christopher Columbus, or you may have to essentially start again like the castaways on Gilligan’s Island. The tools discussed here are not a panacea, but have helped many people fare better than those who haven’t charted their course ahead of time.