Worried about your investments in falling markets? SIP your way out of it

I assure you, no one would say these words of wisdom to you while having discussions about markets and money these days:

  • There could be no better time than right now to stay invested in your funds.
  • It might not be a good time to withdraw your money now.
  • The next few months could be great to invest systematically using SIPs.

In his The Little Book of Behavioural Investing (a must read book for any investor), James Montier says:

How do we as investors prevent ourselves from emotional time travel pitfalls? One answer is to prepare the pre-commit.

Assuming that one had already taken care of emergency funds (by possibly keeping them in a liquid fund), the entire idea of investing in SIP is centered around the theory that we are committing ourselves to let that investment continues in a systematic manner unless things go wrong at fund level or until the completion of it’s tenure.

The volatile markets have an inherent tendency to trigger our emotions. What’s happening in markets tends to affect our behaviour and actions. To err is human, but especially when markets are in turmoil, we end up making decisions that we regret later. In such moments, a investor needs to keep his cool and be disciplined with his investments, otherwise the cost of actions could be very high.

And I don’t want you to trust me. Trust these guys:

The time of maximum pessimism is the best time to buy, and the time to maximum optimism is the best time to sell.

— Sir John Templeton

Be Fearful When Others Are Greedy and Greedy When Others Are Fearful.

— Warren Buffett


I know that very few people would disagree with these lines of thoughts. But nevertheless, as investors our biggest hurdle is short-sigtedness (or “myopia”) i.e. an unjustified focus on the short term. It is thus very important to commit to our long term financial goals, stay invested by sticking to our SIP investments until the goal is achieved, and not capitulate in the face of plunging markets. HODL! (as a lot of cryptocurrency enthusiasts would like to put it).

There would not be a better time than a falling market to double down on your investments, because all your investments will help you buy more units in lesser prices. In other words, buying funds at this time would let you enter the markets at much lower prices than you would have otherwise with equity SIP.

So, the next time you read that the markets have fallen by x%, just relax and enjoy the fact that you possibly got your SIP entry at a discounted price. Take a moment, let that sink in. Then control your emotions like a disciplined investor and staying invested for wealth generation in long run.

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