What to Do When The Stock Market Crashes

What to Do When The Stock Market Crashes

For new investors, a stock market crash can be a frightening experience. In the past few days, there were a lot of gloom and doom talk about the stock market that closed 13,265.47 on Friday, July 27 off the record high of 14,000.41 sets on Thursday, July 19 — a 9.47% drop in 6 days! If you are new to investing, or just invest for the short-term, this is a scary drop. You may begin to think that stock market is like a roller coaster ride — a gamble at best. Here’s what the past 5 days look like:

SP500 and DOW stock indices crash

But one nice thing about roller coaster is that you will be safe as long as you are buckled in and hang on tight. But if you try to jump off in the middle of the ride, that’s when you will hit the bucket. Now, take a look at the stock market from 1950, and see if it’s really that gloomy.

S&P500 and DOW

Would you believe that the chart includes at least 12 Bear markets*:

  1. 1956 to 1957: 19% drop from 521 to 420
  2. 1960 to 1960: 17% drop from 685 to 566
  3. 1961 to 1962: 27% drop from 735 to 536
  4. 1966 to 1966: 25% drop from 995 to 744
  5. 1968 to 1970: 36% drop from 985 to 631
  6. 1973 to 1974: 45% drop from 1052 to 578
  7. 1976 to 1978: 27% drop from 1015 to 742
  8. 1981 to 1982: 24% drop from 1024 to 777
  9. 1987 to 1987: 36% drop from 2722 to 1739
  10. 1990 to 1990: 21% drop from 3000 to 2365
  11. 1998 to 1998: 16% drop from 9250 to 7800
  12. 2000 to 2003

* Sources: Bear Market of the Past 100 Years and Closing milestones of the Dow Jones Industrial Average

If history is any indication, investors are wise to hang on tight. I am using some of my reserve money to buy a few funds. Why not? Everything is on sale!

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2 thoughts on “What to Do When The Stock Market Crashes”

  1. Hey thanks for the mention. Good post with the charts, it really puts the long term growth into perspective. People have a hard time shifting their focus to think about years when it is easy to just see the effect of a few days.

    I like how that one chart shows the effect of the tech bubble bursting right around 2000. Yes, it was a time when people lost a lot of money, but in the grand scheme of things it doesn’t look all that impressive

  2. Jeremy – no problem. I liked the post, and I am sure my readers will enjoy it too. Yeah, I thought the tech bubble was a big deal back then, but I hung on tight and things turned out fine.

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