The Psychology of Flat Markets: How to Stay Invested in XEQT When Returns Go Nowhere

There was a stretch in my investing journey that nearly broke me, and it wasn’t a crash.

It was 2015. I had been investing consistently for about two years at that point – automatic contributions every two weeks, buying broad market index funds, doing everything the books told me to do. And my portfolio had gone… absolutely nowhere. I’d look at my account and the total return was hovering around 1-2%. Not per month. For the entire year. Some weeks I was slightly up, then slightly down, then flat again. The line on my chart looked like a heartbeat monitor for someone taking a very long nap.

I remember sitting at my kitchen table one evening, looking at my portfolio on my phone, and doing the math. I’d contributed thousands of dollars over the past twelve months and my actual investment gains were barely enough to buy a decent lunch. The S&P/TSX had gone nowhere. International markets were soggy. The Canadian dollar was weak. It felt like I was shovelling money into a hole.

And here’s the thing that surprised me: this feeling was worse than what I’d felt during actual market drops. When markets crash, there’s adrenaline. There’s drama. There are headlines and conversations and a strange sense of community – everyone is in it together. Your friends text you about it. Financial media goes into overdrive. There’s something to react to.

But a flat market? Nobody talks about it. Nobody sympathizes with you. There’s no drama, no narrative, no sense of shared experience. There’s just the quiet, grinding frustration of watching your money sit there, month after month, doing nothing. And the voice in your head that whispers: “Maybe this whole indexing thing doesn’t actually work.”

That voice almost won. I came dangerously close to abandoning my strategy and chasing something – anything – that was actually moving. I didn’t, and I’m grateful for that. But it taught me something important: flat markets are the silent killer of investment plans, and almost nobody prepares you for them.

If you’re holding XEQT right now and staring at a flat chart wondering whether this whole thing is worth it, this post is for you.

1. Why Flat Markets Feel Worse Than Crashes

This sounds counterintuitive. A 30% crash is objectively worse for your portfolio than a year of zero returns. So why does the flat market feel harder to endure?

The answer is psychological, and it comes down to a few specific biases that all work against you during sideways periods.

Loss of narrative. During a crash, you have a story. “Markets are down because of a pandemic / recession / banking crisis.” Stories give us a framework. They make the pain feel temporary and explicable. During a flat market, there’s no story. There’s nothing to explain. It just… is. And the absence of an explanation makes it feel permanent.

No sympathy or solidarity. When the market drops 20%, it’s front-page news. Your coworkers mention it. Your family asks about your investments. You feel like part of a collective experience. When the market is flat, nobody cares. You’re suffering alone and in silence, which makes it feel like the problem is you, not the market.

The effort-reward mismatch. You’re doing everything right. You’re contributing regularly. You’re resisting the urge to check your portfolio constantly. You’re staying disciplined. And you have nothing to show for it. That disconnect between effort and reward triggers a deep frustration that crashes don’t, because during a crash you can at least tell yourself “I didn’t cause this.”

Opportunity cost becomes visible. During flat periods, you start noticing what is going up. Maybe U.S. tech stocks are ripping. Maybe crypto is surging. Maybe your coworker is bragging about some niche sector ETF that’s up 30%. Suddenly, your flat XEQT chart isn’t just boring – it represents all the money you could have made if you’d done something different. This is the analysis paralysis trap in disguise.

The compounding math feels broken. You’ve read about compound growth. You’ve seen the charts showing how $500/month turns into a million dollars over 30 years. But those charts assume steady, positive returns. When you’re living through a flat stretch, the math feels like a lie. “If this is what compounding looks like,” you think, “I’m going to need 300 years.”

All of these forces push you toward the same conclusion: this isn’t working, and I should do something different. That conclusion feels rational. It isn’t.

2. Historical Flat Periods in Global Equity Markets

Here’s something that might surprise you: flat markets are not rare. They’re not anomalies or signs that something is broken. They are a completely normal part of how equity markets behave.

Let’s look at some real historical examples of extended sideways periods in major equity markets:

The pattern is striking: nearly every significant flat period in market history was followed by a period of strong, above-average returns. Not because the market “owed” investors a recovery (it didn’t), but because flat periods are usually periods of valuation compression – prices stop rising while earnings catch up, creating the conditions for the next leg of growth.

The U.S. “Lost Decade” from 2000 to 2009 is the most dramatic example. If you had invested $10,000 in the S&P 500 at the start of 2000, you would have had roughly $9,000 at the end of 2009 – a decade of negative returns. Many investors quit during that period. The ones who stayed and kept contributing saw the S&P 500 return over 250% in the following decade.

The people who quit missed one of the greatest wealth-building periods in market history. The people who stayed – and especially those who kept buying during the flat years – were rewarded enormously.

3. What’s Actually Happening During Flat Markets

When your XEQT chart is moving sideways, it’s easy to assume nothing is happening. The price isn’t moving, so nothing is changing, right?

Wrong. A lot is happening beneath the surface. And understanding this is one of the most important mental shifts you can make as a long-term investor.

Companies are still earning profits. The 9,000+ companies inside XEQT don’t stop doing business because the stock market is flat. They’re still selling products, generating revenue, and earning profits. Flat stock prices with stable or growing earnings mean one thing: valuations are getting cheaper. The same $1 of earnings costs you less to own. That’s not a crisis. That’s a sale.

Dividends are still being paid. XEQT’s underlying holdings continue to pay dividends during flat markets. If you’re reinvesting those dividends (which you should be), you’re buying additional shares at lower valuations. This might not show up dramatically in your account balance, but it’s compounding quietly in the background.

Your share count is growing through DCA. If you’re dollar-cost averaging into XEQT – contributing a fixed amount on a regular schedule – a flat market is actually doing you a favour. You’re accumulating more shares at stable prices. When the market eventually resumes its upward trend, you own significantly more shares than you would have if prices had been rising the whole time.

Here’s a simple example to illustrate:

• Scenario A (Rising Market): You invest $500/month for 12 months. XEQT starts at $30 and rises steadily to $36. Your average cost per share is around $33. You end up with roughly 182 shares.

• Scenario B (Flat Market): You invest $500/month for 12 months. XEQT stays around $30 the entire time. Your average cost per share is $30. You end up with roughly 200 shares.

In Scenario B, you have 18 more shares. When the market eventually rises to $36 (or higher), those extra shares are pure profit. The flat market gave you a better entry point for every single contribution you made.

Corporate buybacks are more effective. When stock prices are flat, the companies inside XEQT that buy back their own shares get more value for their money. Each buyback dollar retires more shares, increasing your ownership stake. This is another form of silent wealth-building that doesn’t show up in the price chart.

4. The Silent Compounding Effect

This is the concept that changed everything for me, and it’s one I wish every Canadian investor understood before they experience their first flat market.

I call it silent compounding – the idea that flat markets are not pauses in your wealth-building journey. They are loading springs.

Here’s the mechanism: during flat markets, earnings grow while prices don’t. This compresses valuations. Price-to-earnings ratios decline. Dividend yields effectively rise (because prices are flat while dividends grow). Dollar-cost averaging buys you more shares per dollar. And all of this is happening invisibly, without any fireworks or green arrows on your screen.

Then, when sentiment shifts – when a catalyst arrives, or when the market simply recognizes that stocks are cheap relative to earnings – you get a rapid repricing. The market doesn’t crawl back to fair value. It snaps there. And if you’ve been steadily accumulating shares through the flat period, the effect on your portfolio is dramatic.

Think of it like a rubber band. The flat market is the period where the band is being stretched. It looks like nothing is happening. But potential energy is building. When the band releases, it releases fast.

This is why the returns after flat periods are so often spectacular. It’s not magic. It’s math. Earnings grew, valuations compressed, and your share count increased. When prices catch up to reality, all three forces combine to produce outsized returns for patient investors.

The investors who quit during the flat period? They sold the rubber band while it was being stretched.

5. The Real Danger: Quitting During Flat Markets

Let me be direct about what actually destroys wealth during flat markets. It’s not the flat returns themselves. It’s what investors do in response to them.

The pattern is remarkably consistent:

1. The market goes flat. Returns are near zero for several months or even a few years.
2. Frustration builds. You start questioning your strategy and paying more attention to what’s performing well elsewhere.
3. You make a switch. You sell your diversified XEQT position and buy whatever has been performing well recently – maybe a U.S. tech ETF, maybe a sector fund, maybe individual stocks.
4. The thing you bought was already near its peak. Because you bought it because it had gone up, you entered near the top.
5. Your old position recovers. The globally diversified portfolio you abandoned starts performing well again, exactly as you’re watching your new position stagnate or decline.
6. You’ve locked in the worst of both worlds. You experienced the flat period, missed the recovery, and bought something else at the top. Your returns are now far worse than if you’d simply done nothing.

This isn’t hypothetical. Research from Dalbar Inc., which has been studying investor behaviour for decades, consistently shows that the average equity investor significantly underperforms the funds they invest in. The reason isn’t fees or bad fund selection. It’s behaviour – buying high, selling low, and switching strategies at the worst possible moments.

The 2000-2009 “Lost Decade” is a perfect case study. By 2007-2008, many investors had abandoned U.S. equities entirely. They moved into bonds, real estate, commodities, or international stocks. Then U.S. equities launched into a historic bull run in 2009 that lasted over a decade. The investors who quit were the ones who needed the recovery the most, and they weren’t there to receive it.

The same thing happened with Canadian investors during the oil-driven flat period of 2014-2016. Many sold their Canadian equity positions and went all-in on U.S. stocks. Some of them did well for a while. But they’d abandoned their diversified strategy based on a two-year window, and they’d missed the principle that makes XEQT’s geographic diversification so powerful: different regions take turns leading.

The biggest risk during a flat market is not your returns. It’s your behaviour.

6. Practical Strategies to Stay the Course

Knowing that flat markets are normal and temporary doesn’t automatically make them easy to endure. You need practical tools and habits to get through them without making costly mistakes. Here are the strategies that have worked for me and for many other long-term investors.

Automate everything and remove yourself from the process

The single most effective thing you can do is set up automatic contributions to your XEQT position and then step away. When your purchases are automatic, you don’t have to make a decision each time. You don’t have to feel motivated or optimistic. The money moves, the shares are bought, and your portfolio grows – regardless of how you feel about the market that week.

Automation turns discipline into a default. And during flat markets, when discipline is hardest, that default is worth its weight in gold.

Stop checking your portfolio so frequently

I wrote an entire post about this because it’s that important. Every time you check your portfolio during a flat market, you’re giving yourself a tiny dose of disappointment. That disappointment accumulates. Check your portfolio monthly at most during flat periods. Quarterly is even better.

The market doesn’t care how often you look at it. But your brain does. Each glance is an opportunity for frustration to build, and frustration is what drives bad decisions.

Zoom out to the 10-year chart

When you do check your portfolio, zoom out. Way out. Look at the 10-year or 20-year chart of global equities. Every single flat period you’re worried about today is invisible on that chart. It’s a tiny sideways blip in an unmistakable upward trend.

Flat periods look terrifying on a 1-year chart. They look completely irrelevant on a 10-year chart. Choose the timeframe that matches your actual investment horizon.

Focus on what you can control

During flat markets, redirect your energy toward the things that actually move the needle:

• Increase your savings rate. If you can bump your contributions from $500/month to $600/month, that has a far bigger impact on your long-term wealth than whether the market returns 0% or 5% this year.
• Reduce your fees. Make sure you’re not paying unnecessary commissions, management fees, or currency conversion costs.
• Optimize your tax situation. Are you using your TFSA and RRSP space effectively? Are your contributions in the right account types?
• Earn more income. A raise, a side project, or a career move will compound over your entire investing lifetime.

None of these require the market to cooperate. All of them make your future returns larger.

Remember your actual timeline

If you’re 30, your investing horizon is 30-40 years. A one-year or even three-year flat period is 3-8% of your total journey. Would you abandon a cross-country road trip because you hit a flat stretch of prairie in Saskatchewan? The mountains are coming. You just can’t see them yet.

Write down your timeline and put it somewhere visible. “I am investing for 2060. A flat year in 2026 is irrelevant.” That kind of concrete reminder is surprisingly powerful when the frustration hits.

Talk to someone who’s been through it

Find a community – an investing forum, a friend who also holds index funds, a financial advisor – and talk about what you’re feeling. You’ll almost certainly hear: “I felt the same way, and I’m so glad I didn’t quit.”

7. Why XEQT Is Built for Exactly This

Not all investments handle flat markets equally. This is one of the areas where XEQT’s design really shines, and it’s worth understanding why.

XEQT holds four underlying iShares index funds that together give you exposure to equities across roughly 49 countries. The approximate allocation is:

• ~45% U.S. equities (via ITOT)
• ~25% Canadian equities (via XIC)
• ~25% International developed markets (via XEF – Europe, Japan, Australia, etc.)
• ~5% Emerging markets (via IEMG – China, India, Brazil, etc.)

Why does this matter during flat markets? Because global equity markets almost never go flat at the same time. When U.S. stocks are treading water, European or emerging market stocks might be rallying. When Canadian equities are dragged down by oil prices, U.S. tech might be surging. When developed markets are flat, emerging markets might be having their best year in a decade.

A globally diversified portfolio like XEQT smooths out the experience. While any single region might be flat or negative for extended periods, the overall portfolio tends to have less severe and less prolonged sideways stretches than any individual market.

Compare this to an investor who holds only a Canadian equity ETF or only an S&P 500 fund. When their single market goes flat, their entire portfolio goes flat. There’s no diversification to soften the blow or provide psychological relief. They experience the full brunt of the flat period with no offsets.

XEQT also rebalances automatically. When one region is flat or down (making it relatively cheap) and another is up (making it relatively expensive), BlackRock’s rebalancing process sells some of the expensive region and buys more of the cheap one. This is a disciplined, systematic form of buying low and selling high – exactly the thing most investors fail to do on their own.

During flat markets, this rebalancing is quietly working in your favour. When the flat period ends, you’ll have more exposure to the regions that were cheap and less to the ones that were expensive. That positioning drives outperformance over time.

This is the beauty of XEQT’s design: you don’t have to figure out which region will recover first. You own all of them.

The Bottom Line: Flat Markets Reward Those Who Stay

If you’re reading this during a flat stretch, I want you to know something: what you’re feeling is completely normal. The frustration, the doubt, the temptation to do something different – every long-term investor has felt it. I’ve felt it. And it passes.

The investors who build real, life-changing wealth are not the ones who find the most exciting investments. They’re the ones who survive the boring parts. They’re the ones who keep contributing when it feels pointless. They’re the ones who understand that a flat market is not a broken market – it’s a coiled spring.

Every dollar you invest during a flat period is a dollar invested at compressed valuations. Every share you accumulate is a share that will participate fully in the next recovery. Every month you stay the course is a month closer to the upswing that makes it all worthwhile.

The market doesn’t owe you excitement. But if you give it time – real time, measured in decades, not months – it has rewarded patient investors with remarkable consistency throughout its entire modern history.

Keep buying. Keep holding. Keep being bored. Your future self will thank you for it.