Picture this: you wake up, pour your coffee, check the news, and see headlines blaring, “Markets Plunge 20% Overnight.”

How would you feel?
Would you log in to your account or contact your advisor to sell to “stop the bleeding”?
Or would you take a deep breath and stay the course?

How you answer that question says a lot about your financial resilience—and how well your portfolio is built for the inevitable ups and downs of investing.

The Emotional Side of Investing

Market corrections, defined as drops of 10% or more, are not rare. In fact, since 1928, the S&P 500 has experienced one roughly every 1.8 years.¹ and yet, every time it happens, it feels like the first time.

That’s because investing isn’t just math, it’s psychology. When we see losses on paper, our brains register pain more intensely than the pleasure of gains. Behavioural economists call this loss aversion—and it’s one of the biggest reasons investors underperform the market.

The key isn’t to ignore your emotions; it’s to build a plan that keeps them from running the show.

What a 20% Drop Really Means

Let’s put that 20% into context. A $1,000,000 portfolio dropping to $800,000 is painful, no doubt. But historically, markets have always recovered—often faster than most expect.

• The 2008 global financial crisis saw a 50% drop, yet markets rebounded to pre-crisis levels within five years.
• The COVID-19 crash in March 2020 wiped out 30% in a single month—but fully recovered in about six months.²

The lesson? Downturns are temporary. What matters most is whether your plan is designed to withstand them.

Building Emotional Resilience Into Your Portfolio

Here’s how to ensure the next correction doesn’t derail your long-term goals:

1. Know Your Risk Tolerance (and Your Real Pain Threshold)

Risk tolerance questionnaires are helpful, but they don’t always capture your real-world reaction. The best test is to ask yourself: “How would I feel if my portfolio fell 20% tomorrow?”
If that thought makes you lose sleep, your portfolio may be taking on more risk than you can emotionally handle.

2. Diversify, Diversify, Diversify

Diversification isn’t just about owning many stocks, it’s about owning different kinds of assets that react differently to the same event.
A well-diversified portfolio mixes equities, fixed income, and alternatives such as real estate or private credit. This balance helps cushion volatility and smooth out returns over time.

3. Keep a Long-Term Perspective

If you zoom out far enough, every correction looks like a small blip on the market’s upward trend. Historically, the TSX and S&P 500 have produced average annual returns of 7–10% over long periods.³
That’s why time in the market, not timing the market, is what builds wealth.

4. Have a “Plan for Panic”

One of the best defences against emotional decisions is a written investment policy statement (IPS).
An IPS outlines your goals, target allocations, and what you’ll do (and not do) during market volatility. When fear sets in, that document becomes your compass.

Final Thoughts: Test Your Financial Gut Now

You can’t predict when the next correction will happen. But you can prepare for how you’ll respond.

The best time to test your financial gut isn’t during a crash, it’s before one.
Have a conversation about your risk tolerance, revisit your plan, and make sure your portfolio reflects both your goals and your emotional comfort zone.

Because investing success isn’t about avoiding fear, it’s about managing it.