Risk and Investor Psychology
Chapter 4 of 4
Staying the course in a falling market
7 min read
Falling markets are when the plans of most investors are tested. The aim is not to feel nothing; it is to avoid doing something you will regret.
Before the fall
- Hold an emergency fund so you never have to sell investments to meet a bill.
- Choose an allocation you can live with, using the lowest of your ability, need and willingness.
- Keep money for goals within three years out of equity.
- Know your funds: understand what a normal fall looks like for each.
During the fall
- Do nothing for 48 hours after any urge to sell.
- Remember that your SIP is buying more units at lower prices.
- Revisit your goals, not the headlines. If the goal and horizon are unchanged, the plan probably is too.
- Check that you are not facing a real change: a lost job or a goal brought forward does call for a change.
After the fall
- Rebalance back to your plan.
- Write down what you felt and did, so the next fall is easier.
Key takeaways
- Prepare in calm times: emergency fund, suitable allocation, short-term money kept safe.
- In a fall, pause, review your goals and keep your SIP going.
- Change the plan only when your circumstances change, not when the headlines do.
This content is for education only and is not investment or tax advice. Mutual fund investments are subject to market risks; read all scheme-related documents carefully.