Staying invested during Market correction

*Good morning* 🌞🌞🙏🙏

Understanding market correction: How much of a drop can there be before FD returns match up?

A typical investor's view

You have been enjoying a 14% CAGR for several years, but then the market hits a big drop. Naturally, you think: “Would I have been better off in a bank FD earning 7%?”

Let's simplify this question with numbers.

Why growth is faster than you think

Investing at 14% CAGR means your money grows much faster than an FD at 7% CAGR. However, after adjusting for taxes, the more realistic return of an FD is 6%. Here is the evolution of a ₹100 investment:

• 3 years → ₹151.36 (market) vs ₹119.10 (FD @ 6%)

• 5 years → ₹192.54 (market) vs ₹133.82 (FD @ 6%)

• 7 years → ₹250.13 (market) vs ₹150.36 (FD @ 6%)

• 10 years → ₹370.49 (market) vs ₹179.08 (FD @ 6%)

• 15 years → ₹710.49 (market) vs ₹240.10 (FD @ 6%)

Even if the market falls, The percentage fall required to reach FD levels is huge.

How much fall can there be before it comes at par with FD?

If you have 14% CAGR growth for a few years, the market fall required to come at par with FD returns (6% adjusted) is as follows:

• After 3 years of 14% growth, a fall of 21.3% will bring you to FD levels.

• After 5 years, the corresponding fall is 30.5%.

• After 7 years, it is 39.9%.

• After 10 years, it is 51.7%.

• After 15 years, it is 66.2%.

What does this mean?

Even if the market falls 20% after five years, your investment is still ahead of the FD.

A 30.5% drop after five years or a 51.7% drop after ten years would be needed to bring your returns back to FD levels.

And in this context, the power of the rebound cannot be ignored.

The best part?

Market declines are often temporary, especially if they are emotion-driven and not fundamentally driven.

History shows that long-term investors benefit more than those who panic and exit.

At such times, those who exit are passing on the returns to those who stay invested. At such times, the game changes from a positive-sum format to a zero-sum format of patient investing.

Key Lesson

Market highs and lows are part of the game.

But before you worry about the decline, ask yourself:

“Am I still ahead of FDs, which are my only other option?”

Chances are, the answer will be yes.

Stay invested, go forward.