Are you ready for the next market downturn?
Market downturns can be stressful, but they’re also a good reminder to stick to smart investing habits. Advisors play a big role in helping retail investors focus on portfolios that hold up in tough times. Here are five common mistakes investors make during downturns—and how the iQUANT Portfolio Optimizer can help advisors prevent them.
1. Selling Out of Fear
When the value of an investment drops, it’s natural to panic and want to sell. But this usually locks in losses and makes it harder to recover when the market bounces back.
A Better Way: Diversifying your investments—spreading money across different types of assets and strategies—can help steady your clients’ portfolios, making it easier to ride out the rough patches. Tools like the iQUANT Portfolio Optimizer can help create a mix of investments that balance risks and returns, keeping you on track.
Advisors can also help by setting realistic expectations for their clients, showing how even good investments sometimes lose value temporarily. Knowing this ahead of time can help you stay calm and avoid rash decisions.
2. Going All Cash—and Staying There
Some investors pull all their money out of the market when things get rough but then hesitate to put it back in. Waiting for the "perfect time" can leave them stuck on the sidelines while the market rebounds.
A Better Way: A balanced portfolio with low-correlated investments—those that don’t all move in the same direction—can help you stay invested even during downturns. The iQUANT Portfolio Optimizer can create a plan that’s right for your goals, making it easier to avoid the temptation to go all cash.
3. Thinking You Can Outsmart the Market
It’s tempting to think you can predict the market or pick the best stocks, but this often leads to mistakes, like chasing trends or trading too much during volatile periods.
A Better Way: Even experienced investors rely on diversification and disciplined strategies. The iQUANT Portfolio Optimizer uses data to build portfolios that don’t depend on risky guesses or gut instincts, helping you stick to a long-term plan.
Advisors need to explain to clients why protecting your portfolio from big losses is often more important than chasing big wins. It’s all about winning by losing less.
4. Holding on to Bad Investments
Many investors refuse to sell underperforming investments, hoping they’ll bounce back, or they sell good ones too quickly just to lock in gains.
A Better Way: Focus on your overall portfolio, not individual investments. Diversified strategies make it easier to rebalance—selling a bit of what’s doing well and buying undervalued investments—to stay on track with your goals.
The iQUANT Portfolio Optimizer can also identify opportunities for strategies like tax-loss harvesting, turning mistakes into potential benefits.
5. Not Rebalancing
When markets drop, your portfolio can drift off course. For example, if stocks drop in value, your portfolio might become too conservative, hurting your chances of recovery.
A Better Way: Regular rebalancing—adjusting your portfolio to keep it aligned with your goals—helps you stay on track. The iQUANT Portfolio Optimizer shows how to adjust your investments to balance risk and reward, even during uncertain times.
Why the iQUANT Portfolio Optimizer Helps
The iQUANT Portfolio Optimizer helps you mix investments in a way that reduces risk and avoids common mistakes. Tools like the iQ Model Match can find strategies that work well together, giving you a more resilient portfolio.
By setting realistic goals and staying disciplined, you can help your clients avoid emotional decisions and stay focused on long-term success.
iQUANT: A Powerful Compliment to tools such as stratifi, nitrogen and morningstar.
“Should I replace my current risk software with the iQ Portfolio Optimizer?”
No.
The iQUANT Portfolio Optimizer isn’t designed to replace tools like Nitrogen, Stratifi and Morningstar; instead, it complements them by adding an extra layer of precision to portfolio construction. While platforms like Nitrogen focus on risk assessment and Stratifi excels in client risk alignment, iQUANT enhances portfolio optimization by identifying low-correlated strategies to maximize risk-adjusted returns. Together, these tools help advisors provide a more comprehensive and tailored approach to their clients' investment objectives.
Conclusion: Staying Calm in Tough Markets
Down markets happen, but bad decisions don’t have to. By diversifying based on historical correlations and sticking to your plan, you can help your clients get through tough times. Tools like the iQUANT Portfolio Optimizer make it easier to build smart portfolios and stay on track toward financial goals.
Your role is to guide clients through uncertain times, turning challenges into opportunities to strengthen their portfolios. Staying focused and disciplined—more so than your clients—is key to achieving this. By setting clear expectations from the beginning, you can help clients stick to the plan and handle the inevitable questions and concerns with confidence.