The Inevitable Stock Market Crashes: What Every Investor Should Know

By Debbie Babalola

Market crashes aren’t a matter of if but when. This reality can be daunting, especially for new investors worried about losing money right after entering the market. But seasoned, long-term investors know that crashes are part of the journey.

Crashes present a powerful opportunity to build wealth while the market is down because what comes next is a rebound. However, if you’re in the drawdown phase relying on your portfolio for income, a crash can feel more threatening. That’s why it’s crucial to have a backup plan.

Some investors have been credited with “predicting” crashes like the 2008 downturn, but if you look closer, those same people often predict many other crashes that never happen. Basing your strategy on predictions is speculative at best, and harmful at worst.

Not all crashes look the same. In March 2020, the market lost over 30% in just 22 trading days, a record-fast decline. Compare that to January 11, 1973, when the S&P 500 dropped 30% over 373 days. It was so gradual, and many didn’t even realize a crash was happening.

The total stock market has always recovered from crashes. However, individual companies may go bankrupt and never bounce back. That’s why investing in broad index funds or the total stock market gives you a much safer long-term edge.

5 Tips to Handle a Market Crash and Save Money

1. Decide: Are You an Investor or a Trader?

Investors build wealth over time. Traders seek short-term gains. Don’t mix the two, especially with your retirement accounts. If you’re investing for the long haul, stay consistent, even during volatility.

2. Don’t Let Emotions Drive Decisions

It’s tempting to sell during a crash out of fear, only to buy back in when prices are higher. That’s the opposite of what you want. Be aware of emotional reactions and resist them.

3. Buy the Dip (Strategically)

When prices fall, think of it as a sale. If you’ve got extra funds set aside, use them wisely to invest when assets are discounted. This strategy accelerates long-term growth.

4. Diversify Beyond the Stock Market

Relying only on the stock market can be risky. Diversify into real estate, bonds, or other assets. Even within the stock market, make sure your investments are varied. Always keep a strong emergency fund to avoid withdrawing during a crash.

5. Automate Your Investment Plan

Have a system in place before investing your first dollar. Automate contributions monthly so your emotions don’t dictate your decisions. When markets are volatile, your plan will keep you consistent.

Crashes are part of the investing journey. But with the right mindset and strategy, they can transform into valuable opportunities on your path to building lasting wealth.