Markets fell 4.8% in a single session last month. Your portfolio is down ₹80,000. Your WhatsApp groups are full of panic. What should you do?
The evidence-based answer: almost nothing
Studies consistently show that investors who trade more during volatile periods earn less than those who stay put. The reason: you have to be right twice — when to sell and when to buy back. Most people get both wrong.
What volatility actually means
A 5% single-day drop sounds catastrophic. But the Nifty 50 has experienced 5%+ single-day drops 23 times in the last 20 years. In every case, the index recovered and went on to new highs. Volatility is the price of admission for equity returns.
What you should do during a correction
- Continue your SIPs: You're buying more units at lower prices. This is the mechanism that makes SIPs work.
- Rebalance if needed: If equity has fallen below your target allocation, this is a good time to add.
- Review your emergency fund: Make sure you have enough liquidity so you're not forced to sell equity at a loss.
What you should not do
Don't stop SIPs. Don't redeem equity investments to "wait for things to settle." Don't try to predict the bottom. The investors who stayed fully invested through every correction in the last 20 years significantly outperformed those who tried to time the market.
The mental model that helps
Think of your equity portfolio as a business you own, not a number on a screen. Short-term price fluctuations don't change the underlying value of the businesses you own. Stay focused on the long-term thesis.