What To Do When XEQT Drops 20%
Read this now, before it happens. Having a written plan in advance is the difference between building wealth and panic-selling.
Every XEQT drawdown since 2019
XEQT launched in January 2019. In the years since, it has experienced four meaningful drawdowns. Every single one has fully recovered to a new high.
| Event | Peak-to-trough | Period | Recovery |
|---|---|---|---|
| COVID crash | -33% | Feb–Mar 2020 | ~5 months |
| 2022 rate-hike bear | -18% | Jan–Oct 2022 | ~14 months |
| Late 2023 correction | -11% | Aug–Oct 2023 | ~3 months |
| Early 2024 pullback | -8% | Apr 2024 | ~6 weeks |
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.
The best investment decision you will make during a market crash is not a purchase or a sale. It is the decision to close the app and go outside.
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.
If a market decline has coincided with a job loss, the financial pressure is compounded. The right sequence in that situation is different from a pure market decline: see Should I Sell XEQT If I Lose My Job? for the specific framework covering EI, TFSA access, and when selling is actually the right call.
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.
Buy XEQT. Hold it through everything.
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