How to Get Back Into the Market After Selling Out During a Downturn

If you sold out of the market during a recent downturn, you’re far from alone, and the data consistently shows it was probably the wrong call. This happens every time markets fall sharply: a meaningful share of investors move to cash, fearing further losses, and much of that money stays on the sidelines long after markets recover. The good news is the fix doesn’t require perfect timing. It requires a clear plan and the discipline to follow it.

This Pattern Repeats Every Cycle

Market pullbacks are far more common than most investors expect.

According to Fidelity’s analysis of historical data going back to 1980, declines of 5% or more have occurred in approximately 93% of calendar years, and corrections of 10% or more in roughly 48% of calendar years. 2025 alone saw two separate corrections. This isn’t a prediction about what markets will do next. It’s a description of how often meaningful volatility has historically occurred, which is worth knowing before deciding how to react to the next one.

A concrete recent example: the S&P 500 fell nearly 10% from its January 2026 record high through March, driven by an escalation in the Iran conflict, oil prices spiking above $110 a barrel, and rising concern over tariff-driven inflation. By June, the index stood roughly 16% above that March low, having recovered the decline and then some. Investors who sold during the March drawdown and waited for “more clarity” before reentering generally missed a meaningful part of that recovery. This is the same pattern that played out during the 2020 pandemic-driven crash, and during nearly every sharp decline before it: the recovery tends to arrive faster than the confidence to reinvest does.

Why Staying in Cash Is a Weaker Plan Than It Feels Like

It’s worth being precise about this, since the reasoning has shifted. In a near-zero rate environment, cash was an obviously poor holding because it earned nothing and lost purchasing power to inflation every year. Today, a competitive high-yield savings account pays in the range of 4% to 5% APY, which is a real, positive return after accounting for inflation. Cash today is not the value-destroying holding it was a few years ago.

The actual case for staying invested rests on something different: the difficulty of timing reentry correctly, and the cost of missing the recovery while waiting for one. Equities have historically delivered higher long-term returns than cash precisely because they carry more risk and require investors to hold through periods of volatility. An investor who exits during a decline and successfully waits out the bottom still faces the much harder task of deciding exactly when to get back in, and missing even a handful of the market’s best days, which frequently cluster right around the most volatile periods, has historically had an outsized negative effect on long-term returns. This kind of long-term, stay-the-course discipline is central to Ridgewood’s own investment philosophy: treating volatility as a normal feature of investing to be planned around, not a signal to act on emotionally.

Two Ways to Reenter

• Reinvest the full amount now: Since markets rise more often than they fall over any given period, putting the full amount back to work today maximizes expected exposure to future gains. The tradeoff is that if the market declines again shortly after, the full amount is exposed to that decline. This approach also tends to be emotionally demanding for an investor who sold out of discomfort with volatility in the first place.
  
  
• Dollar-cost averaging back in: Investing a fixed amount at regular intervals, regardless of price, smooths the impact of short-term volatility and removes the pressure of trying to find a perfect entry point. This is the same mechanism already at work in a typical 401(k) payroll contribution. The tradeoff is that if markets simply continue rising, a phased reentry generally underperforms investing the full amount immediately.

Neither approach is universally correct. The right choice depends on how much the amount in question represents relative to your total portfolio, and how much emotional difficulty you’d have staying committed to either path if markets moved against you immediately after implementing it.

What’s Different About the Environment Right Now

A few factors are specific to the current environment and worth factoring into how you think about volatility going forward, without treating any of them as a prediction of what markets will do next.

• Elevated valuations and concentration: U.S. equities entered 2026 trading at a premium to historical average valuations, with a small handful of mega-cap technology companies representing a historically large share of major index weight. This doesn’t predict a decline, but it does mean index-level returns are more dependent on continued strength from a narrow group of companies than has typically been the case.
  
  
• Midterm election year patterns: Midterm election years have historically shown a tendency toward higher volatility and more muted returns than other years in the presidential cycle, followed typically by stronger performance in the year that follows. This is a historical pattern, not a guarantee, but it’s a reasonable input into expectations for the remainder of 2026.
  
  
• Trade and inflation policy: Tariff levels rose meaningfully into 2026 relative to prior years, adding a source of inflation uncertainty that didn’t exist in the same form during prior market cycles, including 2020.

What to Do Differently Going Forward

The specific decision to reenter today matters less than building a plan that prevents the same exit decision from happening again during the next downturn, since there will be a next one. A written investment policy, agreed to before volatility hits rather than during it, removes the need to make a high-stakes emotional decision in real time. This is one of the more concrete, practical roles a fee-only fiduciary advisor plays: not predicting the next decline, but building a plan in advance that’s realistic enough to actually stick to when it happens.

Frequently Asked Questions

I sold my investments during a market downturn. Should I get back in now?

For most long-term investors, staying in cash indefinitely after a downturn has historically been more costly than reentering, since a meaningful share of long-term returns has often come from periods immediately following sharp declines. The specific timing matters less than having a clear plan, either reentering the full amount at once or phasing back in on a fixed schedule.

Is dollar-cost averaging better than investing a lump sum all at once?

Since markets rise more often than they fall over long periods, investing a lump sum immediately has the higher expected return in most historical periods. Dollar-cost averaging reduces the risk and emotional difficulty of investing right before a decline, which makes it a reasonable choice for investors who would otherwise struggle to stay committed to a lump-sum reentry.

How often do stock market corrections happen?

Corrections are a normal, recurring feature of investing rather than an unusual event. Declines of 5% or more happen in the large majority of calendar years, and declines of 10% or more happen in roughly half of calendar years, based on data going back to 1980.

Is it better to hold cash instead of investing right now?

Cash today earns a meaningfully positive yield, unlike the near-zero environment of a few years ago, so it’s no longer an automatically poor choice for money needed in the near term. For long-term investment goals, however, cash has historically underperformed a diversified equity portfolio by a wide margin over time, which is the more relevant comparison for money that isn’t needed for several years or more.

Related Reading

• The Decision Investors Regret During Market Declines
• Why Market Corrections Are Normal + Q3 2025 Earnings: Summary & Review

About the Author

Ken Majmudar, CFA, is the Founder and Chief Investment Officer of Ridgewood Investments, a fee-only fiduciary registered investment adviser based in Springfield, New Jersey. He has been investing since 1992, with a focus on long-term value investing for high-income professionals, business owners, and multi-generational families.

Disclosure

This article is for general informational and educational purposes only and does not constitute investment, legal, or tax advice, and does not take into account any individual’s specific financial situation, objectives, or risk tolerance.

Ridgewood Investments is a registered investment adviser. Registration with the SEC does not imply a certain level of skill or training. References to historical market patterns, valuations, or volatility statistics are for illustrative and educational purposes only and are not a prediction or forecast of future market performance.

Past performance is not indicative of future results. All investments involve risk, including the possible loss of principal. Diversification and dollar-cost averaging do not ensure a profit or protect against loss, particularly in a continuously declining market.

Please consult with a qualified financial advisor before making decisions about reentering the market or restructuring an investment portfolio based on the information presented here.