What To Do When XEQT Drops 20%

The complete action list

When XEQT drops 20%, here is the complete list of actions you should take:

What a 20% drop actually means

When XEQT falls 20%, it does not mean your money is gone. It means the market's current valuation of 8,400+ companies around the world is temporarily lower than it was. The companies themselves still exist. They still have employees, products, customers, and earnings.

Apple still makes iPhones. Royal Bank still issues mortgages. Toyota still manufactures cars. Samsung still sells semiconductors. The market's short-term assessment of what those businesses are worth fluctuates based on sentiment, interest rates, economic data, and geopolitical events. The underlying businesses keep running.

A paper loss is not a real loss. Your XEQT units have not disappeared. Their market price has declined. That price will recover when sentiment, interest rates, and economic conditions stabilize, which they have done after every correction in the history of markets. For the full case that XEQT is a sound long-term choice even in difficult periods, see the case against XEQT examined honestly.

Historical drawdown data

How recoveries work

Market recoveries do not announce themselves. The bottom of a correction looks, from inside it, indistinguishable from the beginning of a deeper decline. This is why people who try to "wait for the bottom" to buy back in almost always miss the recovery and buy back at higher prices than they sold at.

The March 2020 crash illustrates this precisely. XEQT hit its low on March 23, 2020. Nobody knew that was the bottom on March 23. It felt like the beginning of a depression. Investors who held received a 50% gain over the following six months. Investors who sold near the bottom and waited for clarity to return missed the fastest market recovery in history.

You will not time this correctly. Nobody does consistently. The solution is to stay invested, automate contributions, and let time do the heavy lifting.

The math of panic selling

Selling XEQT during a 20% drawdown requires two correct decisions, not one. You need to be right about selling at the bottom, and you need to be right about buying back in before the recovery is complete. The odds of being correct both times are low.

Assume you sell a $100,000 XEQT position when it is down 20%, receiving $80,000. You wait three months for "clarity." The market recovers 25% during those three months, bringing XEQT back to $100,000. You buy back in with your $80,000. You now own 80% of what you had before. You crystallized a real $20,000 loss and missed the recovery. Your decision cost you $20,000 in permanent wealth.

In a TFSA, that $20,000 loss is also lost TFSA room, because the room is based on the contribution amount, not the market value. Selling $80,000 from a TFSA and waiting to rebuy means you spent $80,000 of TFSA room for $80,000 in cash and then used $80,000 of room again to rebuy, rather than keeping the original $100,000 position and its room intact.

What to do with your feelings

Your feelings during a market decline are real and worth acknowledging. Watching a portfolio fall 20% feels terrible. The anxiety is a normal human response to perceived loss, and it does not mean you are doing anything wrong or are poorly suited to investing. Almost everyone feels it.

The useful thing to do with those feelings is not to act on them in your brokerage account. Talk to a friend who also invests. Write down why you bought XEQT in the first place. Remind yourself of the historical data above. Read this article again if it helps. Take a walk. Do anything except log in to Wealthsimple with the intention of selling.

If you actually need the money

If a market decline coincides with a genuine financial emergency and you actually need cash, selling XEQT is the correct decision regardless of the price. Forced liquidation is not panic selling. It is what happens when you did not have an emergency fund, which is the real problem to solve.

This is why every piece of standard personal finance advice includes building three to six months of essential expenses in a high-interest savings account before investing in equities. The emergency fund exists specifically so that a market crash cannot force you to sell XEQT at the worst possible moment. If you are reading this article before you have invested, build the emergency fund first.

One useful portfolio check

There is exactly one useful thing to examine during a significant XEQT decline: whether your current asset allocation still matches your actual risk tolerance. If a 20% decline has genuinely threatened your financial security or your ability to sleep, that is information. It suggests you may be holding more equity than suits your real risk tolerance, not your theoretical risk tolerance.

If that is the case, the time to address it is after the recovery, not during the decline. Selling at the bottom to shift to a more conservative allocation locks in losses. Choosing to hold XGRO instead of XEQT going forward, implemented after the market has recovered, is a sensible response to discovering your true risk tolerance. For a full guide on the right and wrong reasons to sell, see when you should sell XEQT.

The buy-more opportunity

A 20% XEQT decline is genuinely an opportunity for investors with available cash. At a 20% discount, you are buying the same 8,400+ companies at a lower price than you could have a few months ago. The expected long-run return on an XEQT purchase made during a correction is higher than on a purchase made at an all-time high, because you are paying less for the same future earnings.

If you have cash in a high-interest savings account, a TFSA that is not fully deployed, or RRSP room you have not used, a meaningful market decline is precisely the moment to consider accelerating contributions. This is not market timing. It is recognizing that buying the same thing at a lower price is better than buying it at a higher price, which is the one prediction about markets you can make with confidence.