The Arithmetic of Continuing a SIP Through a Drawdown

Two pieces of arithmetic are usually presented separately, and they belong together.

The recovery maths

A portfolio that falls 30% requires a 43% gain to return to its starting value. Falls of 40% require 67%. Falls of 50% require 100%. This asymmetry is the reason drawdown control matters more than return maximisation over long horizons.

The accumulation maths

The same fall has a second effect for anyone still deploying capital. A fixed monthly contribution buys 43% more units at a price 30% lower. If contributions continue through the decline, the average entry price falls and the eventual recovery operates on a larger unit count.

These two facts are not in conflict. They describe different capital: the money already invested faces the recovery maths, the money not yet invested faces the accumulation maths. Which one dominates depends entirely on how much of your eventual total contribution is already in the market.

The part that is not arithmetic

Knowing this does not make continuing easy. The decline that makes contributions valuable is the same decline that makes them feel reckless. Every historical drawdown looks like an obvious opportunity in hindsight and an obvious warning at the time.

The only defence we know of is automation — removing the monthly decision entirely so that continuing requires no act of will, and stopping requires a deliberate one. Reversing the default is a small change that does most of the work.

• Automate the contribution so continuing is the default.
• Decide in advance, in writing, what would make you stop — and make it a real condition, not a feeling.
• Check the portfolio less often during declines, not more.