Editor’s Note: A deadly combination of policies, notably DOGE firings and steep tariffs, are wreaking carnage on Wall Street. As recession fears loom and political instability rises, investor sentiment has turned grim. Last week’s massive plunges in global markets might be just the beginning.

When the stock market suffers a major sell-off for whatever reason, it’s tempting to freeze, panic, or simply look the other way. But that’s the moment when disciplined investors can actually strengthen their portfolios.

One of the most effective tools at your disposal is rebalancing: realigning your asset mix to match your long-term goals while taking advantage of temporary dislocations in the market. Here’s how to approach rebalancing your portfolio after a big market drop, step by step.

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Global Shockwaves

First, some context. As the following chart shows, Trump 2.0 has taken a chainsaw to the world’s major equity indexes:

Unsurprisingly, U.S. stocks have been hit the hardest by Trump’s “Liberation Day” on April 2 of tariff announcements. China’s stocks have actually stayed in positive territory, as the Western alliance fractures and the world’s second-largest economy seems poised to inherit America’s leadership role. Western investors are looking beyond the U.S. and toward China, as the MAGA playbook unleashes global havoc.

The above chart doesn’t even include the huge sell-off that followed on Friday, April 4.

Last Thursday and Friday, Wall Street experienced its worst two-day plunge in history, with $6.6 trillion wiped off the value of U.S. stocks.

U.S. stocks have lost about $11.1 trillion in value since January 17, the Friday before President Trump started his second term.

With the sharp two-day slide at the end of last week, the S&P 500 was down over 17% from its February 19 all-time closing high, a level that approaches bear market territory.

Make America great again, indeed.

Now let’s examine time-proven steps to protect your wealth, because this market madness is far from over.

Step 1: Take a Breath and Reassess Your Risk Tolerance

Before making any moves, pause and consider how the sell-off made you feel. Did you lose sleep? Were you tempted to sell at the bottom? If so, your portfolio may have been too aggressively positioned.

Risk tolerance isn’t static; it can evolve with age, life events, or even a crisis of confidence. Use this moment to ask whether your current portfolio still reflects your true comfort level with risk. If not, rebalancing can be your first step toward better alignment.

Step 2: Evaluate Your Target Asset Allocation

Rebalancing begins with knowing your ideal asset mix. That could be 60% stocks and 40% bonds, or it could be more conservative or aggressive, depending on your time horizon and goals.

Read This Story: The “Trump Slump” Playbook: How to Invest Now

After a major sell-off, equity positions tend to shrink, making your portfolio more conservative than intended. For instance, if your 60/40 split suddenly looks more like 50/50 because stocks fell sharply, that could mean you’re underexposed to equities during a recovery.

Rebalancing gives you the chance to buy low. Restore your target weights by scooping up beaten-down stocks or sectors.

Step 3: Analyze the Damage—And the Opportunity

Pull up your current portfolio allocation and assess where the biggest imbalances are. Did tech stocks fall 30% while your bond holdings stayed stable? Did international stocks or small caps take an even harder hit?

This analysis will highlight reentry opportunities, i.e. areas of the market that have been unfairly punished but are likely to rebound. It’s crucial to distinguish between sectors that are temporarily out of favor versus those facing structural decline.

Some questions to ask:

• Are there quality companies trading at significant discounts?
• Has market sentiment diverged from underlying fundamentals?
• Which sectors or geographies are now attractively valued?

Remember: the goal is not just to rebalance but to rebalance intelligently.

Step 4: Trim the Winners, Buy the Losers (Strategically)

Classic rebalancing involves selling a portion of your winners and reinvesting the proceeds into underweight areas, often the ones that just got hammered. This forces discipline: you’re not chasing performance, you’re resetting to your strategy.

Example: If your bond holdings are now overweight after stocks plunged, trimming some bonds and using the cash to buy high-quality stocks at lower prices can restore balance and improve your return potential.

This step requires conviction. Rebalancing may feel counterintuitive when headlines are screaming doom. But history shows that disciplined rebalancing often improves long-term returns and reduces volatility.

Step 5: Don’t Forget Tax Implications and Account Types

Before you start buying and selling, think about where you’re making these trades. In taxable accounts, realizing capital gains from trimming winners can trigger tax bills—so weigh that against the benefits of rebalancing.

In tax-advantaged accounts like Individual Retirement Accounts (IRAs) or 401(k)s, you have more flexibility to rebalance without immediate tax consequences. It’s often wise to make the most of these vehicles when repositioning after a crash.

Also, consider tax-loss harvesting, which means selling losing positions to offset gains elsewhere. This can be an added silver lining during volatile periods.

Step 6: Consider Using New Contributions Instead of Selling

If you’re hesitant to sell positions or trigger taxable events, another option is to use new contributions, cash you’re adding to your accounts, to restore balance. Direct those new dollars toward underweight areas of your portfolio, gradually bringing your allocations back in line.

This technique works especially well for long-term investors who contribute regularly through 401(k)s or brokerage accounts. It allows you to rebalance passively without having to sell anything.

Step 7: Build a Plan for Future Rebalancing

Rebalancing shouldn’t be a one-time reaction; it should be a part of your ongoing investment discipline. After each crisis or market drop, use what you’ve learned to build a more resilient strategy.

Set a rebalancing schedule, quarterly or annually, or trigger it based on thresholds (for example, when an asset class deviates more than 5% from target). This prevents emotion from driving your decisions and enforces a level of discipline that separates successful investors from reactive ones.

A major sell-off can feel like the worst time to make investment decisions, but in reality, it’s often the best time to step in. Rebalancing after a crash helps you lock in a disciplined process, reset your portfolio to fit your goals, and position yourself for the recovery ahead. Don’t just ride out the storm. Reposition for the sunshine that follows.

Got a question or comment? Drop John Persinos a line at mailbag@investingdaily.com

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