Preparing for a Fast Correction

In July 2011, I wrote in Expect a Buying Opportunity Soon:

"After a 20% decline, I plan invest 10% of our retirement account back into stocks.  After that I will reinvest 15% for the next 10%.  Then I will reinvest 20% for each succeeding 10% drop.  So if the market drops 40%, we will be 45% back into the market.  Past 40%, I probably don't have the courage to continue to reinvest."

Unfortunately, the Dow never reached 10,200, which was my target 20% decline, and I missed getting back into the market..  The Dow got as low as 10,362.30 and rallied back to 13,359.60 before declining again.  This time my target buy point is 10,688.  However, I'm not going to risk missing a fast correction again.  So I plan to make some small purchases of select stocks when the market corrects, even if the amount is only a few shares.  I can afford to do this because my broker has offered limited free trades for 6 months in return for adding funds to my current account.

With no commission costs, I can afford buying 10 to 20 shares at time to hedge against either a fast correction or a further drop.

For more on Strategies and Plans, check back every Monday  for a new segment.

This is not financial advice. Please consult a professional advisor.

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