Summary of this article
As markets turned volatile, many young investors - especially those heavily exposed to small-cap stocks and thematic bets - are now confronting sharp swings, portfolio drawdowns and uncertainty for the first time.
There is a common misconception among young investors that taking higher risk simply means going all-in on small-cap stocks.
Equity markets can test your patience and even make you question investing itself. That discomfort is part of the journey, and investors need to accept this reality instead of expecting markets to always move upward.
The recent spike in SIP (Systematic Investment Plan) stoppage ratios crossing the 100 per cent mark may not worry everyone yet, but it does show that many young investors are becoming cautious as they face their first prolonged spell of market volatility. A large number of first-time investors who entered the market after COVID only saw equities during a phase of strong, almost one-way gains till early 2024. For many of them, this created the impression that markets rise quickly and steady returns are almost guaranteed.
But the last 18 months have been a reality check. As markets turned volatile, many young investors - especially those heavily exposed to small-cap stocks and thematic bets - are now confronting sharp swings, portfolio drawdowns and uncertainty for the first time. The result is decision paralysis: whether to continue SIPs, pause investments, book losses or stay invested.
“The last one-and-a-half years of volatility have been a reality check for many investors. Equity investing is not just about chasing the best-performing stocks or sectors; it is about understanding asset allocation and managing risk wisely. Many young investors who are struggling right now are often those who mistook being ‘aggressive’ for being reckless, putting most or all of their money into one segment - largely small-caps,” says Mohit Bagdi, Head of Investment Research & Founding Member of MIRA Money.
According to him, there is a common misconception among young investors that taking higher risk simply means going all-in on small-cap stocks. While small-caps delivered exceptional returns during the rally, the sharp corrections that followed have left many investors anxious. Some are exiting investments out of fear, while others continue holding losses in the hope of a recovery, unsure of what to do next. “This indecision and constant second-guessing is preventing many investors from taking clear calls for the future,” he adds.
Bagdi says the confusion has been made worse by the constant noise on social media and from finfluencers, where investors are bombarded with conflicting messages every day — one side asking them to “buy the dip” and the other warning of a “market crash.” This flood of opinions has created a sense of paralysis among many retail investors. “When ten different people are telling you ten different things, you often end up doing nothing at all,” he says.
He points out that phases of flat or negative market returns are not unusual, but many young investors have never experienced such periods before. “Equity markets can test your patience and even make you question investing itself. That discomfort is part of the journey, and investors need to accept this reality instead of expecting markets to always move upward,” he explains.
Bagdi believes investors should use this phase as an opportunity to reflect and strengthen their long-term approach rather than slow down. “If you are investing for the long term, volatility is something you must learn to appreciate. These are the phases that eventually help create meaningful wealth over time,” he says.
At the same time, he cautions that being aggressive should not mean taking blind or concentrated risks. Instead, investors should stay disciplined, continue investing, and even consider increasing allocations during uncertain times - but through a diversified and fundamentally strong portfolio spread across large, mid and small-cap assets, along with fixed income exposure.
“Most importantly, investors need a clear and filtered perspective, whether through their own research or with the help of a trusted advisor, to cut through the noise. Wealth may grow during bull markets, but it is often built during the periods when markets feel the most uncertain,” he says.
FAQs
1. Why are young investors pausing SIPs?
Many young investors today began their investing journey during the last year’s blistering post-Covid rally. This bull market rally did not give them enough experience with long-term volatility. Also, first-time investors who had jumped on board in recent rallies didn’t witness the big corrections in small-caps like what we are seeing now. So, they lack conviction and fear losing money if they stay invested as they don’t know what the returns might look like.
2. Is it wise to stop SIPs in times of volatility?
Investment advisors would suggest you continue SIPs during market volatility. Rupee-cost averaging your investments and riding out market cycles is the sure-shot way of becoming a millionaire.
3. Biggest mistake young investors make?
The biggest mistake a young investor can make is equating aggressive investing with concentrated bets like lumping most of their investments into small-caps or thematic bets. Not diversifying across asset classes and segments is another rookie mistake.
