When Stock Markets Drop: What Else Can We Invest In?
When the market drops sharply, we often hear: “Isn’t there something safer we could invest in?”
It’s a natural question. When your portfolio declines, the emotional urge is to stop the pain and find something more stable. But in investing, short-term discomfort and long-term success are often linked. So before making any changes, it's important to revisit what risk really is—and what we’re actually trying to achieve.
What Is Real Risk?
Most people define risk as volatility—the ups and downs of the market. But that’s not the most important risk to guard against.
The real risk is losing your purchasing power over time—the ability to afford your lifestyle, healthcare, travel, and freedom in the future.
Inflation erodes your money’s value gradually. If your investments don’t grow fast enough to keep up, you fall behind—even if things “feel safe.”
So, what should we be invested in instead?
When markets drop, it’s tempting to search for something completely different—something that feels less risky or more reassuring. But before we pivot to new ideas, it’s worth revisiting the basics. What are the essential tools we already have in our portfolio? And why do we own them?
The Two Core BUILDING BLOCKS of Investing
Let’s revisit the two fundamental components of most portfolios:
STOCKS = Ownership in Progress
When you own a stock, you own a piece of a business. Businesses are the engines of innovation, growth, and productivity.
We believe the only asset class that truly captures human innovation is equity ownership in companies around the world.
Yes, stocks are volatile. But they are also the most powerful tool investors have to beat inflation, grow wealth, and preserve purchasing power over time.
"The key to making money in stocks is not to get scared out of them." — Peter Lynch
This is why staying invested in great companies—even during downturns—is the foundation of long-term success.
BONDS = Lending with Limitations
When you buy a bond, you're lending money to a company or government in exchange for interest payments and the return of principal at maturity. Bonds can offer stability and income, and they often act as a buffer when stocks are under pressure.
However, bonds are not without risks:
- Longer-term bonds are sensitive to rising interest rates—which can erode value.
- They typically don’t outpace inflation, especially after taxes.
- They can’t generate meaningful growth on their own.
In other words, bonds can serve a purpose—but they should be held with clear intent and reasonable expectations. Relying on them to grow wealth over long periods is a mistake.
What About “Alternative” Investments?
You may have heard about options, futures, metals, annuities, private real estate, hedge funds, structured notes, private equity, or other “non-traditional” investments—especially when stocks are down. These are often marketed as ways to reduce risk or generate “uncorrelated” returns.
But here’s our view:
Most alternative investments are more expensive, less liquid, less transparent, and often more speculative than traditional investments. They tend to work against our evidence-based, client-focused investment philosophy.
They may have a place for highly specific situations, but for most investors, they create more complexity than value.
And when it comes to real estate specifically—most individuals already have significant exposure through homeownership. Your home is a real asset that already participates in local housing trends, inflation protection, and real estate value growth.
Stay Disciplined, Stay Invested
The right response to volatility isn’t abandoning your strategy—it’s understanding it.
A well-designed portfolio built on globally diversified stocks and bonds, with a long-term focus and a clear financial plan, remains the most effective way to grow wealth and protect purchasing power.
Alternative investments may be marketed as sophisticated solutions, but in our experience, clarity and discipline outperform complexity and speculation.
Want to Learn More?
In our white paper, A Clear-Eyed Look at Alternative Investments, we explore alternative investments—explaining where they fall short, and why an evidence-based approach grounded in ownership and stability remains the most compelling long-term solution.
If you’re feeling uneasy about market swings or want to revisit your plan, let’s talk. The goal isn’t to avoid every dip—it’s to build a strategy that keeps you invested through them.
Core Takeaway
Equities are how you invest in human progress. Bonds provide ballast. Alternatives often promise more than they deliver. Simplicity, discipline, and evidence still win.