How To Stick To Your Investment Plan When Markets Crash

Investing in the stock market is not very different from taking a long journey. Some days go by easily, while others come with unexpected bumps in the road. But what should you do when the ride gets rough, like during a market crash?

For many investors, the automatic response is to feel scared and either stop investing or pull out their money. However, market dips can actually be an investment opportunity. Learning how to stick to your investment plan during these hard times is what separates disciplined investors from the rest.

In this article, we’ll take a closer look at how you can stay calm and focused when markets fall. You don’t need to be an expert. You just need a little patience, a basic understanding of investing behaviour, and a strategic mindset.

• Table of contents

• Understanding market crashes: A natural part of the investment cycle
• Why sticking to your plan matters during volatile times
• Emotional investing: The biggest threat to your returns
• Strategies to stay on track during market crashes
• Lessons from past market crashes
• How SIPs help you ride out market volatility
• When should you review (but not abandon) your plan?

Understanding market crashes: A natural part of the investment cycle

Just like seasons change, markets fluctuate. This is all part of a typical investment cycle.

Let’s understand what we mean by a market crash:

• A market crash is a sharp and quick drop in stock prices.
• It often happens due to political, economic and global events.
• Panic selling and other emotion-led investor behaviour can make these crashes more pronounced
• But historically, markets have tended to recover over time.*

*Past performance may or may not be sustained in future.

Why sticking to your plan matters during volatile times

When markets crash, it’s tempting to change your investment plan or pull out your money. But this panic reaction can often be detrimental to your portfolio. It’s important to stick to your investment plan for the following reasons:

• You avoid emotional mistakes that can cost you money.

• You give your investments time to potentially recover and grow over time.
• You remain focused on your long-term goals, such as purchasing a home or building a retirement fund.

If you have a detailed plan, you don’t need to panic when the market falls. All you need to do is stay the course.

Also Read: How Do Stock Market Crashes Impact Mutual Fund Investors?

Emotional investing: The biggest threat to your returns

One of the biggest mistakes people make is emotional investing. This means letting fear or greed control your decisions instead of facts.

During a market crash:

• Fear can lead you to sell too soon.
• Greed can make you buy too much or chase risky stocks.

Both fear and greed can harm your returns. The best investors stay calm and think long-term. They don’t allow short-term emotions to guide their decisions.

Strategies to stay on track during market crashes

Let’s look at some simple strategies that can help you stick to your investment plan even when things get tough.

1. Automate your investments (like SIPs)

• A Systematic Investment Plan (SIP) helps you invest a set amount of money at regular intervals.
• It takes away the stress of timing the market.
• During a crash, you buy more units at a lower price. This is called rupee cost averaging.
• Over time, this helps lower your average cost and grow your wealth steadily.

2. Build a diversified portfolio:

• One of the core aspects of risk management is to spread your investments across multiple securities. This helps reduce the impact of a single underperforming asset on the portfolio.
• Diversifying across asset classes (equity, debt, gold) can further mitigate risk and reduce the impact of volatility on your portfolio
• This is also important because after a crash, even if markets recover, some stocks may not bounce back.

3. Focus on long-term goals

• Ask yourself: Why did I start investing in the first place?
• Keeping your eyes on the end goal helps you ignore the short-term noise.

4. Avoid panic selling

• Selling during a crash means you lock in the losses.
• The market may fall today but could recover in a few months or years.
• If you sell out of fear, you miss out on the potential bounce-back.

Always remember that losses on paper are not real until you sell. Stay invested and give your money time to grow again.

5. Rebalance, don’t retreat

• Rebalancing means readjusting your investments to match your original allocation.
• For example, if the value of stocks fall and bonds now account for , you might sell some bonds and buy more stocks.
• This keeps your risk level steady and can help you buy low and sell high.

So, instead of running away, just modify your plan a little bit to keep it balanced.

Lessons from past market crashes

Here are some real-life examples of how markets bounced back after major crashes:

• 2008 Financial Crisis: Markets dropped sharply, but recovered in a few years. Many investors who stayed invested made strong returns.
• 2020 COVID Crash: Markets fell fast in March but recovered by the end of the year. SIP investors who continued saw their investments grow.

These show us that investing during market downturns can still be rewarding, as long as you stay patient and stick to your plan.

How SIPs help you ride out market volatility

An SIP investment is like putting your money on auto-pilot. It helps in many ways during market crashes:

• You invest regularly, no matter how the market is doing.
• You end up purchasing more units when prices drop and fewer when they rise.
• You build a habit of investing, without worrying about timing.

This can take away some of the stress and emotional decision-making from investing, and help you potentially build wealth steadily over time.

When should you review (but not abandon) your plan?

While you should stick to your investment plan, there are times when a review is necessary:

• If your financial goals have changed (for example, you plan to retire earlier).
• If there has been a major shift in your income or spending habits.
• If you feel uncomfortable with the amount of risk involved in your investments.

In such cases, it’s you may consider talking to a financial expert.

Also Read: Navigating A Stock Market Crash

Conclusion

Sticking to your investment plan during a market crash may feel difficult, but it’s the smartest thing you can do. Crashes are a part of the market journey, and not the end of it. By understanding the cycle, managing your emotions, and using tools like SIPs, you can stay calm and focused. Three things you can remember are: Crashes are temporary, goals are long-term, and emotions can be tricky! So, stick to your plan and don’t give in to your fear.

FAQs

What should I do with my investments during a market crash?

Stay calm and avoid panic selling. Stick to your plan and continue your SIPs if possible. Only make changes if your financial goals or situation have changed.

How can I avoid panic selling in a downturn?

Set up automated investments and focus on your long-term goals. Avoid checking your portfolio too often during crashes.

How often should I review my investment plan during volatile markets?

Review your plan once or twice a year, or if there’s a major life change. Avoid making sudden changes just because of market movements.

Why is it important to stay invested during a market downturn?

Staying invested allows your money to potentially recover if the markets bounce back. If you exit during a crash, you lock in your losses and miss out on potential future gains.