What to do When the Stock Market Crashes
- Emerson Hemstreet
- 14 hours ago
- 2 min read
When the stock market starts to go down, it's human nature to panic and want to sell your stocks as soon as possible to limit the amount of money you lose. But experienced investors understand that markets will go through corrections and crashes and when they do what most experts advise that you do not sell. What they advise is that you actually do "nothing."
Long-term investors who have a diversified portfolio know not to panic when the market crashes, because over time it will almost definitely go back up. It may take many years, but every crash in the history of the stock market has been followed by a period of larger gains. According to Dimensional Fund Advisors, since 1926 the average annual return of the S&P 500 is approximately 10% per year. Successful investors, such as Warren Buffett, point out that when the market crashes it is actually a good time to invest more money because prices are way down and you can buy shares of good companies for cheap (or index funds if you want automatic diversification).
Experts suggest that you only invest money you don't need for paying other bills. Basically, money you can invest and forget about for decades, that way you are not at risk of having to take the money out of your investment account when the market is down. Life is unpredictable and sometimes this might be necessary, but if possible it is best to keep the money you have in your investment accounts there until retirement. As teenagers, we're talking a time span of over 50 years!
Below are some historical examples of corrections followed by gains:
4 Times Stock Market Corrections Were Followed by Long-term Gains
The most famous stock market crash happened in October 1929, when the market went down 25% in two days. By the summer of 1932, the market was down 89% from it's high. In the years to follow, the market started posting gains, but did not return to its 1929 high until 1954, a period of 25 years! (Dear fellow teenagers, if there's an argument for long-term investing, this is it!)
In 1987 the stock market lost 33% of its value in a 4 month period. The market recovered back to its peak by May of 1989 then continued to produce postive gains into the 1990s.
Between September of 2000 and October 2002 the market was down 47%. From 2003-2006 the stock market returned 75.8%, more than erasing the 47% downturn.
The market dropped 55% from October 2007 to March 2009. It recovered its peak by April 2012 and began its record bull run in the years to come, with only two negative years of negative returns through 2025.
Year | S&P 500 total return |
2011 | 2.11% |
2012 | 16.00% |
2013 | 32.39% |
2014 | 13.69% |
2015 | 1.38% |
2016 | 11.96% |
2017 | 21.83% |
2018 | -4.38% |
2019 | 31.49% |
2020 | 18.40% |
2021 | 28.71% |
2022 | -18.11% |
2023 | 26.29% |
2024 | 25.02% |
2025 | 17.88% |
Sources:
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