Stock Market Turmoil: 3 Crucial Things to Do Now to Protect Your Portfolio

Over the past three years, stock indexes soared, and the famous S&P 500 delivered a 78% gain, reaching multiple record highs. A lower interest rate environment, as well as optimism about new technologies such as artificial intelligence (AI) and quantum computing, drove investors to pile into these and other growth stocks. Though worries about U.S. tariffs on imports rocked markets last spring, the concerns quickly eased, and indexes went on to gain and finish the year on a positive note.

But in recent weeks, new concerns have accumulated, from questions about the AI revenue opportunity to uncertainty about the pace of interest rate cuts and the state of the economy. Meanwhile, the escalating conflict in Iran, which turned into war in recent times, added to investors' worries. As a result, indexes have swung from gains to losses, and last week, the Dow Jones Industrial Average posted its worst weekly drop since April.

The stock market clearly is in turmoil right now, but this doesn't mean you should stop investing. Here are three crucial things to do now to protect your portfolio -- and increase your chances of an investing win over the long run.

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1. Add diversification

It's never a good idea to go all in on one stock or industry and ignore the others -- regardless of how promising that stock or industry may be. Even the best companies encounter headwinds at one point or another, and that could result in poor stock performance. During times of turmoil, we might see this unfolding, with certain sectors suffering more than others.

The best way to insulate our portfolios from this risk is to invest broadly in a variety of stocks and industries -- so if some slip, others may compensate. And you can design this around your investment strategy. So aggressive investors may favor growth stocks but still buy shares of "safer" players, such as pharmaceutical or dividend stocks. And cautious investors might more heavily weight the safer bets, while investing in a small number of growth stocks.

2. Buy quality and hold onto it

Even though stock movement may look a bit scary right now, this is actually a great time to buy stocks. It's a lot like shopping in a store for physical items: Isn't it a better idea to buy that top-quality shirt when it's on sale than when it's marked at full price?

The important thing is to focus on quality. This means looking for companies that have a strong track record of growth, are profitable or have a clear path to profitability, and have solid long-term prospects. These players may be down today, but they're not out. Will today's troubles seriously damage a particular company's long-term growth story? If the answer is "no," then it may be a stock to consider.

Of course, once you buy stocks during turbulent times, the turmoil may continue -- and the stock may slip further. Try not to focus on day-to-day performance; instead, consider the stock's long-term potential. When you invest for a number of years, these rough periods won't impact overall performance by very much -- or at all.

3. Don't panic sell

Always remember: You haven't lost if you haven't sold. So, during times like these, don't sell at a loss unless you've really lost faith in the particular player and don't expect it to recover -- and prefer to sell and use the cash to invest in more promising stocks.

Otherwise, if you see that some of your quality stocks are falling or look sluggish, don't sell them. You're likely to regret such a move once the tumultuous times pass, as these players recover and potentially go on to gain.

As mentioned above, when the market is down or in turmoil, it's not the time to run away, but instead to buy -- and it's likely you'll cheer about this decision over the long run.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.