Adjusting Your Index Portfolio During Market Downswings

Theres no doubt markets are off to a horrible start to begin the year. Here is the current overview of North American markets to start 2016:

Dow Jones (8.67%)

S&P 500 (9.40%)

Toronto Stock Exchange (6.34%)

And many of the international markets are doing even worse. It's not exactly all sunshine and rainbows at this point. So, how can you respond effectively to this?

Stick to the same strategy we've been talking about since the beginning.

Continue with your monthly contributions but now you will likely be splitting them between the stock indexes only to increase you percentages back to your original allocations. If you are unable to contribute enough to your investments to reset percentage allocations, consider selling off some bond indexes (which have remained relatively stable this year) and buying more stock indexes instead. If you have not read our blog post on discussing % allocation click here.

All you can do is make the best of the situation and put your money to use so that it can build on itself in the future. If you were comfortable with buying S&P 500 stock indexes at the end of 2015, they are now at a 9.4% discount! It would be illogical to put off on buying more given we do not know the future of the market. Continue with the strategy and variance will ride itself out.

Stock may continue to drop, they may rebound, they may do a mix of both, no one knows. By continuing to buy during lows, you stand to benefit from downswings by having bought cheaper units. When upswings do occur, you will be there to reap the benefits.

In 2008 when the market crash occurred, the Dow Jones ended down 33.84% on the year (S&P 500 was down 38.49%) only to then rise for the next 6 years. The losses were more than made up for. The cheapest index units you could've possibly bought over the past 10 years were during this recession. Savvy index investors should think of the word opportunity when markets crash.


-Yinvestors.


keywords: index, index investing, stock market, index balancing, rebalancing index, index funds, e-series, S&P 500 index, S&P 500, TSX index, DJIA index, U.S. stock index, Canadian stock index, Canada index.
Graphs source: Yahoo Finance