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Investors are reeling.
For the third time in five years, the S&P 500 is staring at another bear market.
After peaking on February 19, the S&P 500 has fallen as much as 19%. On an intraday basis, the S&P declined by over 20%… the definition of a bear market. And yesterday, the market surged 9%, showing that whipsaws aren’t going away any time soon.
That’s a major change from recent years. Following steady gains, investors were conditioned to buy the dips and pullbacks.
That worked for a while. Heading into March, the Nasdaq-100 spent 497 trading days above the 200-day moving average. That’s the second-longest stretch in history.
The steady gains made investing look easy.
Managing risk was even easier when things mostly moved in one direction. But now that’s changing.
The conventional wisdom around risk management no longer applies.
Here’s why you need to rethink risk – and how one popular strategy can hurt your portfolio when you need risk management the most…
Flawed Theories
Diversification is the traditional approach to risk management.
There’s a common saying among investors that you shouldn’t put all your eggs in one basket. That means spreading your bets out across a large number of stocks to reduce risk in your portfolio.
By doing so, you reduce the negative impact that any one stock could potentially deliver.
Several popular theories of building investment portfolios are rooted in diversification. This approach to risk management is taught up and down Wall Street.
But here’s the thing…
Spreading your bets around a large number of stocks might work when the market is grinding higher.
But that tactic only protects you when something specific happens with a company or two… not when the broader market is melting down.
Broadly speaking, stocks tend to move in the same direction together. You might have heard of correlation.
Correlation measures how two things move relative to each other. If they move in the same direction, that is a positive correlation. If they move in opposite directions, that’s a negative correlation.
Across the stock market, the average stock has an extremely high positive correlation with the S&P 500.
So when things are going well and the S&P 500 is moving higher, most stocks tend to follow along.
But it works the other way as well. When the S&P 500 is falling, most stocks will follow it lower.
That means diversification in the stock market still leaves you exposed to the downside.
There’s a better way to manage risk instead.
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Managing Risk in a Bear Market
You might think that holding 30 (or even 50+) stock positions spreads your risk around.
But those positions will mostly move in the same overall direction… higher or lower.
As we face yet another bear market, there’s still time to rethink risk in your portfolio.
We’ve seen volatility and price swings returning in a major way. Instead of the “buy and hold” approach across many positions, you need to be adaptive and ready to take advantage of volatility.
My subscribers are doing so by keeping a clean portfolio.
That means we’re not loading up on dozens of positions at a time. We’re taking small, measured bets. And we are ready to capitalize on both the upside and downside in the stock market.
For instance, I’ve sent 17 trade recommendations to subscribers in my One Ticker Trader advisory so far this year.
All but one has been closed for a gain. That means we have a 94% win rate.
Our average gain is 29.2% with an average hold time of just 9 days.
We’re playing the bounces as well as the pullbacks. Of those 17 trades, 9 were bets that prices would decline, while 8 were geared toward price rallies.
That shows how adapting and recognizing real risk is the key to thriving when volatility picks up.
That’s why I want to help you protect your portfolio during this turmoil. More than that, we can profit from the same conditions that have many people running for the exits.
So if you’d like to see how easy it is to get started, simply go right here. I explain the key features of my volatility strategy that’s taking advantage of the tariff chaos.
Investing was easy when the S&P posted back-to-back 20%+ gains in 2023 and 2024. But in 2025, proper risk management to protect your hard-earned capital should always come first.
Happy Trading,
Larry Benedict
Editor, Trading With Larry Benedict