Navigating Market Corrections: A Thoughtful Approach to Investing

At its core, investing is about managing both opportunities and risks. After engaging with investors for over 15 years, we’ve observed certain patterns that often shape the investment journey.

A particularly common behaviour is the tendency to invest more aggressively during market uptrends, only to retreat when markets decline. While this approach is understandable, it can lead to missed opportunities, especially during market corrections.

Timing the Market vs. Staying the Course

Many investors are drawn to invest when markets are at their peak, often driven by optimism and the fear of missing out.

However, these investments, made when valuations are high, can lead to prolonged waiting periods for returns, especially if the market corrects soon after. In fact, our firm advised caution starting in July last year, warning clients to avoid heavy investing as we sensed frothy valuations.

Today, as the market experiences a correction, we are urging clients to begin considering opportunities again. Yet, the common sentiment remains: “The market might fall further; we’ll wait and see.”

This cautiousness, while understandable, can often lead to missed opportunities. Historically, corrections have occurred with predictable regularity:

First-grade corrections (5–10% declines) typically occur every 1.5 years.
Second-grade corrections (10–20% declines) surface every 3 years.
Third-grade corrections (20% or more) happen every 4 to 5 years.

The current correction falls into the second-grade category—our 15th major market correction since 1991. Despite this decline, we’re observing a stable economy with low bond yields, which suggests underlying economic strength.

Investing During Corrections: A Time-Tested Strategy

Market movements are rarely linear. Declines and recoveries are part of the cycle, but it’s the investor’s mindset during these phases that makes all the difference. As investors, it’s crucial to remain objective, stick to long-term goals, and respect valuations.

When corrections occur, they often present opportunities for those who can invest patiently. It’s not about rushing in but about taking a disciplined, well-thought-out approach.

By maintaining a clear investment strategy, you’re better equipped to weather downturns while positioning yourself for potential gains during recoveries.

The Importance of Process and Patience

A key takeaway from our experience is this: Never completely sit out of the market. Having a process for both entering and exiting investments—grounded in both art and science—ensures that decisions are educated and thoughtful, rather than reactive. While no one can perfectly time the market, having a disciplined approach allows for better handling of its ups and downs.

Conclusion: The Case for Staying Invested

Market corrections are inevitable, but they shouldn’t be feared. They serve as reminders to respect valuations, stay patient, and focus on long-term objectives. At the end of the day, successful investing is about striking a balance between risk and reward, and having the courage to invest when opportunities arise. While no one can predict the exact future, taking educated, disciplined actions will always serve investors well.

At Vika wealth, our job is to make you a better-informed investor.