Hit hard by the stock market crash? This is a valuable lesson you need to learn

Let’s consider what’s happening right now. A six-month picture reveals genuine pain. The BSE Sensex has plummeted 11.5%, shedding more than 9,400 points. The carnage in small caps is even more pronounced, with a staggering 23.7% collapse, erasing over 13,200 points. These aren’t minor corrections; they represent real wealth vanishing from portfolios. This certainly feels devastating for the investors who are heavily weighted in favour of smaller companies, especially those who have joined the market recently. I understand that anguish. Watching months or years of gains evaporate within weeks is genuinely distressing, regardless of what historical patterns might suggest.

Here’s where the perspective becomes invaluable. Look at the five-year charts and, suddenly, the story transforms dramatically. The Sensex has gained an impressive 95% over this period, while small caps have surged by a remarkable 221%. Even after this ‘crash’, the investors who have stayed the course for five years have seen their investments multiply substantially.

This pattern isn’t new or surprising, though the severity might feel unprecedented to newer investors. The six-month charts reveal what experienced market participants recognise as a classic correction—sharp, painful and seemingly relentless. Yet, market historians will tell you that downturns of this magnitude occur with almost clockwork regularity. They are the natural breathing rhythm of a healthy market, though they rarely feel healthy while we’re enduring them. The trouble begins when we forget this fundamental truth and position our portfolios as if the markets only move in one direction.

I’ve long advocated a balanced approach. Loosely speaking, one should invest perhaps 10-30% in fixed income, 30-40% in large caps, and the remainder divided among mid and small caps. This isn’t merely conservative prudence; it’s a recognition of the market reality. For investors who had structured their portfolios in this manner, the current situation is manageable; uncomfortable, perhaps, but not devastating. If you find yourself among those feeling crushed by the recent market movements, I won’t offer the cold comfort of ‘I told you so’. We’ve all made investment mistakes. The question isn’t whether we will err (we will), but whether we’ll learn from the experience.

Think of the market downturns as fee payments in your financial education. The lessons may be expensive, but they’re valuable if properly absorbed. The key insight isn’t that the markets sometimes fall; everyone knows this intellectually. The profound lesson is that knowing this fact doesn’t immunise us against emotional reactions when it happens.

If you’re feeling the sting right now, consider using this experience to reassess your true risk tolerance. It’s easy to embrace risk when the markets are soaring; during downturns, we discover our capacity for volatility. Perhaps your allocation needs adjustment, not because the markets are unpredictable, but because your emotional response to them proved more intense than anticipated.

Remember that time remains the most powerful tool in any investor’s arsenal. The five-year charts don’t merely show impressive gains; they reveal the reward for patience during previous downturns that have been entirely forgotten. The investors who achieved those returns weren’t necessarily more brilliant than others; they were more disciplined about staying invested.