If your investment portfolio has dropped in value, you are experiencing something every investor goes through. Market falls are a normal and expected part of investing in shares — not a sign that something is broken. Understanding why portfolios drop and what to do (and crucially, what not to do) is one of the most important skills in long-term investing.
Why Investment Portfolios Drop
1. Market Downturns Are Normal
Share markets go up and down constantly. Even in strong long-term bull markets, short-term declines of 5–15% occur regularly:
| Decline type | Frequency (approximate) | Definition |
|---|---|---|
| Correction | Every 1–2 years | 10%+ fall from peak |
| Bear market | Every 5–10 years | 20%+ fall from peak |
| Major crash | Every 20–30 years | 40%+ fall (GFC, COVID crash) |
The Australian share market has experienced all of these and has historically recovered and reached new highs each time. Past performance is not a reliable indicator of future performance.
2. Global Events and Economic Cycles
Share prices reflect expectations about future company profits. When global events (wars, pandemics, recessions, interest rate changes) threaten economic activity, prices fall because expected future profits fall.
Recent examples:
- 2008–09 GFC: ASX 200 fell approximately 55%
- March 2020 COVID crash: ASX 200 fell approximately 37% in 5 weeks, then recovered within 9 months
- 2022 rate-rise selloff: ASX 200 fell approximately 10–15%, global share portfolios fell more
All three events were followed by recovery and ultimately new market highs.
3. Interest Rate Changes
When interest rates rise, bond yields increase, making bonds more attractive relative to shares. This can cause share prices to fall — particularly for growth-oriented companies whose value is based on future earnings (which are discounted at higher rates when rates are high).
4. Currency Movements
For Australian investors holding international ETFs (like VGS), a strengthening Australian dollar reduces the AUD value of international holdings even if underlying share prices rise in local currency terms. This is a normal feature of unhedged international investing.
5. Specific Fund Events
Your particular ETF or shares may have fallen more or less than the broader market due to:
- Fund-specific weightings (e.g., a tech-heavy fund falls more in a tech selloff)
- Currency effects (hedged vs unhedged)
- Individual company events within the fund
What to Do When Your Portfolio Drops
Do: Stay Calm and Review Your Time Horizon
The most important question: When do you need this money?
If you have a 10+ year time horizon, a market fall today is almost certainly a temporary event. Every major historical decline in diversified share markets has been followed by recovery. Selling during a crash locks in losses that would have been temporary.
Do: Keep Investing (if DCA)
If you invest monthly and the market has fallen, your regular contributions are now buying more units at lower prices. This is the mechanism by which dollar cost averaging benefits long-term investors — market falls buy more units, which contribute more to the eventual recovery.
Do: Rebalance if Allocation Has Drifted
If your portfolio has drifted significantly from your target allocation (e.g., bonds now over-weight after a share fall), rebalancing — buying more shares at lower prices while selling some bonds — is a legitimate response.
Do Not: Sell in Panic
The most common and damaging investor mistake. Selling during a market crash converts temporary paper losses into permanent real losses — and leaves you sitting in cash wondering when to reinvest. Research by Dalbar and others consistently shows that investors who sell during downturns and try to time re-entry significantly underperform buy-and-hold investors.
Do Not: Constantly Check Your Portfolio
Checking your portfolio daily or weekly during a downturn increases the emotional pressure to sell. Review your portfolio quarterly, not daily.
Do Not: Borrow to Buy More
Increasing leverage (using margin loans or personal loans to buy more shares) during a downturn amplifies both potential gains and potential further losses. This is not appropriate for most retail investors.
Historical Context — Markets Recover
ASX 200 recovery timeline after major crashes:
| Event | Peak decline | Time to recover to previous peak |
|---|---|---|
| 2008–09 GFC | −55% | ~5 years |
| 2020 COVID crash | −37% | ~9 months |
| 2022 rate-rise | ~−10–15% (ASX) | ~18 months |
Investors who held through all three events saw their portfolios recover and grow beyond previous levels. Past performance does not guarantee future recovery — but the historical pattern has been consistent.
When a Portfolio Drop Should Concern You
A portfolio drop is genuinely concerning if:
- You need the money within 1–3 years and cannot afford to wait for recovery
- You are in retirement and drawing down — sequencing risk requires a different approach (a cash buffer can help)
- You have used leverage (borrowed to invest) — falls are magnified
In these situations, your asset allocation may have been too aggressive for your actual situation. A review with a licensed financial adviser is appropriate.
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Frequently Asked Questions
Should I sell my ETFs when the market drops? For investors with a long time horizon (7+ years), selling during a market drop typically results in worse long-term outcomes than holding. You crystallise losses, sit in cash earning low returns, and face the difficult decision of when to reinvest — often buying back in after prices have recovered. Historical evidence strongly favours staying invested for long-term investors.
What is a normal amount for a portfolio to drop? Annual corrections of 5–15% are normal and occur frequently in share markets. Falls of 20%+ (bear markets) have historically occurred roughly every 5–10 years. A diversified all-growth ETF portfolio can fall 30–50% during a major crash. This volatility is the “cost” of higher expected long-term returns — defensive assets like cash and bonds fall less but also grow less.
How long does it take for a share portfolio to recover? Recovery time varies considerably by event and portfolio composition. The 2020 COVID crash recovered within 9 months; the 2008 GFC took approximately 5 years. A portfolio of diversified global shares has historically recovered from every major downturn to date. Past recovery is not a guarantee of future recovery — markets could theoretically decline and not recover, though this has not happened historically for diversified global portfolios.
This article provides general financial information only. For advice tailored to your situation, speak with a licensed financial adviser. You can find one through the ASIC financial advisers register or MoneySmart.