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Downturns are good for you

If you invest during market downturns, you will have two major advantages


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Among many things that are curious about the stock market is investor behaviour in bull and bear markets. Investors invest more in bull markets, when stock prices have already raced, and cut down on investing in bear markets, when stock prices are down and hence stocks are trading at a bargain. It's not that investors don't know this fact. In fact, it's an oft-repeated investment cliche. Yet by some quirk, investor behaviour tends to be just opposite of what it should be.

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Downturns are good for you

The graphs below show risk and returns across various time frames in various market scenarios. Maximum returns at the least probability of loss are obtained when the market has corrected. This shows that investing in market downturns has indeed proved more profitable over the long term, that too at lower risk. In fact, over 10 years, the probability of negative returns is almost zero if you invest during a correction. The ongoing downturn is yet another opportunity to improve your returns. It's not the time to run away from the market but to continue investing.

Does this mean that in order to invest you should always wait for the market to correct? No, because you don't know when the correction might happen. In a secular bull run, you can miss out on the opportunity if you wait for a deep correction. The right method is to continue investing through all phases. As the numbers show, over the long term, even if you invest at higher levels, you earn decent returns. However, don't make the mistake of discontinuing investing if the market corrects. That's when you will make most returns.

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