Markets fall — regularly, sometimes sharply. A 30%+ equity drawdown isn't a freak event; it's a recurring feature of investing. What turns a temporary fall into permanent damage is almost always the investor's own reaction. The antidote is to decide how you'll behave before it happens.
First, accept the premise
Crashes are normal and their timing is unknowable. Recoveries follow — also on an unknowable schedule, often faster and earlier than feels possible (see our piece on the cost of timing the market). You cannot predict the bottom, and you don't need to. You need a plan you'll stick to.
The playbook — what to do
- Don't sell long-term equity into the fall. Selling converts a paper loss into a real one and locks you out of the rebound. If the money isn't needed for years, a crash changes its price, not its purpose.
- Keep your SIPs running. Those instalments now buy more units at lower prices — exactly when it's hardest to keep going and most valuable to.
- Lean on your asset allocation. This is why you set one. A mix you can tolerate means a 35% equity fall is a planned-for event, not an emergency.
- Check your near-term money is safe. If you followed the rule that money needed within ~3 years sits in debt, the crash doesn't touch what you'll spend soon — which is what makes it bearable.
- Rebalance, if you're disciplined. A crash pushes you below your equity target; restoring it means trimming debt and buying equity low. Do this on your rules, not your emotions.
- Harvest tax losses if you have realised gains to offset — a small silver lining (see tax-loss harvesting).
- Tune out the noise. Crash-time forecasts are entertainment. Check your portfolio less, not more.
What NOT to do
- Don't stop or pause SIPs. You'd be switching off the buying exactly when prices are best.
- Don't redeem in panic to "protect" what's left — that's selling low.
- Don't try to time a re-entry. "I'll sell now and buy back at the bottom" almost always ends with buying back higher, after the rebound.
- Don't make big, emotional allocation changes. Decisions made in fear are the ones you regret.
- Don't watch it hourly. Constant checking amplifies loss aversion and the urge to act.
The one prerequisite
This playbook only works if the groundwork is laid beforehand: an emergency fund so you're never forced to sell, near-term money already in debt, and an allocation you genuinely chose. With that in place, a crash is something you ride out. Without it, you're improvising under stress — the worst possible condition for financial decisions.
A crash tests your plan and your temperament, not your forecasting ability. The investor who calmly does almost nothing — keeps investing, holds the allocation, rebalances on rule — typically comes out far ahead of the one who acts. In a downturn, discipline is the strategy.