5 Things to Remember When the Financial Markets Correct

February 26, 2018

  1. Reaffirm your goals
  • Any investment you make has a goal. For example, the goal of your checking account may be to have cash available to pay your bills and the goal of your IRA is to provide funding for your retirement. When the financial markets correct, it is good practice to revisit the goals of each of your investment accounts as not all investments have the same goals.
  1. Diversification
  • An important component of risk management is for your investments to be spread across multiple types of investments as well as different investment strategies. When reviewing the diversification of your investment assets, remember to include your real estate holdings and your cash holdings as these are important components of diversification.
  1. Rebalancing
  • A key foundation of investment returns is the allocation of your investment portfolio. It is not uncommon that investors allow the allocation of their portfolios to become skewed when financial markets are on an uptrend. This is somewhat akin to the idea of “letting the winners run” and a desire to not “miss out” on continued increases in the market. However, an impact of this action can be that investors’ portfolios become out-of-balance with their targets. Thus, when the markets correct their losses are more than they expected. It is important to review your asset allocation annually, and even more important when financial markets correct.
  1. Dollar Cost Averaging
  • Anyone who has contributed to a retirement plan each time they receive their paycheck, has utilized the principle of dollar-cost averaging. Dollar cost averaging is the periodic investment of dollars into the financial markets. In addition to being a good risk management tool, it is also a good principle to employ when markets do correct. While no one wants to see financial asset prices decline, declining asset prices provide cheaper entry points for additional investments and thus may be a good opportunity for additional investments.
  1. Time in the market, not timing the market
  • It is most investors’ desire to invest in the market at its lowest point and to sell their investments when the market is at its highest point. However, real life examples as well as academic studies provide a great deal of data about the difficulties of trying to time the market. One of the main reasons this is so difficult is because it is only with hindsight that investors can determine when the trough and peak occurred. Further, data shows that much of the return associated with a recovery of asset prices occur within the first few trading days of a rebound. Therefore, unless your goals and/or financial situation has changed it is unlikely to be beneficial to try to time your investments when financial markets correct.


Kevin Moore, CFP®, AIF® is a financial advisor and CERTIFIED FINANCIAL PLANNER™ at i*financial located at 1901 NW Military Hwy Ste. 102, San Antonio, TX 78216. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 210-342-4346 or by email at kevin@youandifinancial.com.