A market crash usually means stocks falling 20% or more from their high, often fast. It's frightening the first time. The investors who come out fine are mostly the ones who don't sell. This guide covers what to do, and what not to do, when it happens.
Updated October 12, 2026.
- A crash is a fall of 20% or more, often fast. Every US crash has eventually recovered, but some took years.
- Selling after a big drop turns a temporary fall into a permanent loss.
- Money you need within a few years belongs in cash or Treasury bills, not stocks.
- Keep automatic investments going; a crash means each dollar buys more shares.
Crashes happen, and markets have recovered
| Crash | Drop (approx.) | Back to the old high |
| 1929–1932 | Dow −89% | 1954 (about 25 years) |
| 2000–2002, dot-com | S&P 500 −49% | 2007 |
| 2007–2009, financial crisis | S&P 500 −57% | 2013 |
| 2020, COVID | S&P 500 −34% in about a month | August 2020 |
| 2022, inflation | S&P 500 −25% | January 2024 |
US stocks have always recovered eventually, but not always quickly. After 1929 it took decades. That's why money you'll need in the next few years shouldn't be in stocks at all.
1. Don't sell in a panic
A loss isn't locked in until you sell. If you sell after a 30% drop, you turn a temporary fall into a permanent loss, and you then have to decide when to buy back. Many of the market's best days come soon after its worst ones, so people who sell and wait for things to "feel safe" often miss the rebound.
2. Check when you need the money
- More than 5 years away: today's price matters much less than it feels. Leave it invested.
- Within a few years (a house deposit, tuition, retirement soon): that money belongs in cash, a high-yield savings account or Treasury bills. Move it gradually once the market has stabilized, not in a panic.
- Emergency fund: if you don't have 3 to 6 months of expenses in cash, build that before investing more.
3. Keep your automatic investments going
If you invest a set amount every month, a crash means each dollar buys more shares. Don't pause your 401(k) or IRA contributions. Spreading purchases over time is called dollar-cost averaging.
4. Look less often
People feel a loss roughly twice as strongly as an equal gain, which researchers call loss aversion. Checking your balance several times a day makes selling feel more urgent. Turn off price alerts and check once a month.
5. Rebalance if your mix has drifted
If you hold stocks and bonds, a crash shrinks the stock share. Rebalancing means moving some money back into stocks to return to your target mix, which buys stocks while they're cheaper. See how to rebalance and the 60/40 portfolio.
6. Harvest losses in a taxable account
In a regular brokerage account (not an IRA or 401(k)), you can sell a fund that's down, buy a similar but not identical one, and use the loss to offset gains and up to $3,000 of ordinary income a year. Don't buy back the same or a "substantially identical" fund within 30 days before or after the sale, or the wash-sale rule disallows the loss. Some apps do this for you: brokerages that automate tax-loss harvesting.
Mistakes to avoid
- Trying to time the bottom. Nobody reliably knows when it is. Markets often turn while the news is still bad.
- Buying single "bargain" stocks with money meant for your core portfolio. Some companies never recover. A broad index fund spreads that risk.
- Borrowing to buy the dip. Margin loans can force you to sell at the worst moment.
What selling would have cost in 2020
| Date | $10,000 in an S&P 500 fund | If you sold at the bottom |
| February 19, 2020 (peak) | $10,000 | $10,000 |
| March 23, 2020 (bottom) | About $6,600 | Sold: about $6,600 in cash |
| August 2020 | Back to about $10,000 | Still about $6,600, unless you bought back in |
| End of 2021 | About $15,000 (with dividends) | Depends on when you got back in |
The recovery was unusually fast in 2020, but the pattern is common: the people who sold locked in the loss, while those who held on recovered with the market.
What to do, account by account
| Account | What to do |
| 401(k) or 403(b) | Keep contributing, especially up to the employer match. You're buying at lower prices. |
| Roth or traditional IRA | Keep contributing if you can. Don't withdraw early; you may owe taxes and a 10% penalty. |
| Taxable brokerage | Consider tax-loss harvesting (below). Don't sell long-term holdings out of fear. |
| Savings and emergency fund | Leave it in cash. This is what lets you avoid selling stocks at a loss. |
| Near retirement | Make sure the next few years of withdrawals are in cash or bonds so you don't have to sell stocks low. |
Write your crash plan now
It's easier to make good decisions before the market falls. Write down:
- Your stock/bond mix, and the drift (for example, 5 percentage points) that would make you rebalance.
- How many months of expenses you keep in cash.
- That you'll keep automatic investments running.
- Who you'll talk to before selling anything, such as a fee-only advisor or a level-headed friend.
- A rule like "I won't sell stocks I don't need for 5+ years because of a drop."
Correction, bear market or crash?
| Term | Usual meaning |
| Pullback | A fall of 5–10% from a recent high |
| Correction | A fall of 10–20% |
| Bear market | A fall of 20% or more that lasts |
| Crash | A sudden, steep fall, often within days or weeks |
Corrections happen often, roughly once every year or two on average. Bear markets are less common. More in bull vs. bear markets.
FAQ
Is the stock market crashing right now? Check a major index such as the S&P 500. A fall of 10% from a recent high is usually called a correction, and 20% a bear market. See bull vs. bear markets.
Should I move everything to cash? Only money you need within a few years. For long-term money, selling after a fall usually locks in the loss.
How long do bear markets last? It varies a lot. The 2020 bear market lasted about a month; the 2007–2009 one lasted about a year and a half, and the recovery took several more years.
Should I stop my 401(k) contributions during a crash? Usually not. You're buying shares at lower prices, and stopping can mean missing your employer match.
Is it a good time to buy during a crash? For long-term money, regular buying during a downturn has historically worked well. Don't use money you'll need soon, and don't try to guess the exact bottom.
Are bonds safe in a crash? High-quality government bonds have often held up better than stocks, but not always. In 2022, both stocks and bonds fell.
What if I need my money now? Sell what you need from the safest holdings first, such as cash or bonds, and leave stocks to recover if you can.
