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What To Do When the Stock Market Is Crashing

A stock market crash is marked by a sudden drop in stock prices. You can prepare for a crash (or weather one) by understanding when to hold and when to sell, diversifying your portfolio and talking to an advisor.

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Stock market dips can be scary, but knowing the basics of how to invest can help. You can also learn about how to invest during a recession and recession-proof stocks.

When a major index takes a dive — especially a steep one — investors naturally wonder if we're on the verge of a stock market crash. And in the moment, it can be hard to tell.

That's in part because there’s no specific number that indicates a crash. But here’s a bit of context: The S&P 500 stock index typically changes between -1% and 1% on any given day. Anything outside these parameters could be considered an active day on the stock market — for better or for worse.

If the S&P 500 drops 7% in a single day, trading may be halted for 15 minutes. This has only happened a handful of times in the market’s history, and indeed marks a very bad day on Wall Street. A crash is marked by a sharp and sudden drop in stock prices, usually following an uptrend in the stock market, also known as a bull market.

What's spooking the market lately?

Even in good times, markets sometimes lurch downward for a day or two, because there's always something investors are worried about.

Here are a couple of anxieties that are affecting the stock market in 2026. It's important to note that none of these things are guaranteed to cause a market crash — but if one were to happen in the near future, it would probably have something to do with this stuff:

The Iran war and rising energy costs: The recent outbreak of war in the Middle East has led to the closure of several important oil shipping routes, such as the Strait of Hormuz, sending the price of a barrel of oil well over $100. This has spooked markets, as more expensive oil raises costs for many businesses, and could pull overall inflation back up to a problematic level.

Potential interest rate hikes: Given that the war could hike up consumer prices and bring back inflation, markets now think that the Federal Reserve may raise interest rates this year rather than lower them. Higher interest rates make borrowing more expensive, which can hit many publicly traded companies' bottom lines.

Tariffs: Since Donald Trump returned to the White House last year, the U.S. has threatened to impose import taxes on many countries, some of which are major trading partners of ours. Tariffs have the potential to increase costs for businesses and consumers, especially if other countries retaliate with tariffs of their own, which is why investors don't like them. It's worth noting that President Trump has often only threatened to impose tariffs, and then pulled back after working out some kind of deal with a foreign leader, although some tariffs have actually been implemented.

Worries about overvalued tech stocks: In the first half of this decade, large tech companies (especially those that play big roles in the AI industry) accounted for a disproportionate share of the stock market's returns. Today, some investors are concerned that AI companies — and tech stocks in general — could be overhyped and overpriced.

Examples of previous crashes

For a bit more context on how severe a crash really is, we can look at previous one-day crashes of the S&P 500

On October 19, 1987, the S&P 500 fell more than 20%. It was after this regulators put in place the circuit breaker functions mentioned above

On March 16, 2020, the S&P 500 fell nearly 12% on fears of how COVID-19 would affect the global economy.

On October 15, 2008, the S&P 500 fell more than 9% during the global financial crisis.

» Learn more: What is a bear market and how should I invest during one?

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What to do during a stock market crash

If you have a long investment timeline and are properly diversified, it’s often best to ride out the downturns. Understanding that a crash is a possibility means you can plan for it and react thoughtfully. Here's a six-step game plan for what to do when the market crashes.

1. Know what you own — and why

A fear-driven reaction to a temporary slump isn't a good reason to dump an investment. But if you look back at your original stock research notes, you may find some good reasons to sell.

Thorough stock research includes a written record of the strengths, weaknesses and purpose of every investment in your portfolio, as well as things that would earn each investment a place in the "out" box. Your research is like an investing road map, a tangible reminder of the things that make a stock worth holding.

During a market downturn, this document can prevent you from tossing a perfectly good long-term investment from your portfolio just because it had a bad day. On the flip side, it also provides clear-headed reasons to part ways with a stock.

Ideally, before diving into stocks, you gauged your risk tolerance, or how much volatility you’re willing to stomach in exchange for higher potential returns. Investing in the stock market is inherently risky, but what makes for winning long-term returns is the ability to ride out the unpleasantness and remain invested for the eventual recovery, which, historically speaking, is always on the horizon.

If you skipped this step and are only now wondering how aligned your investments are to your temperament, that’s OK. Measuring your actual reactions during market turmoil will provide valuable data for the future. Just keep in mind that your answers may be biased based on the market’s most recent activity.

2. Trust in diversification

When a market decline hits, your results may vary — and perhaps for the better — if you’ve invested money across different baskets of asset classes like stocks and bonds. Diversifying, or distributing your money across investments, is key to reducing investment risk and smoothing the ride through a tumultuous market. Diversifying helps ensure your investments (eggs) aren’t concentrated in one type of asset (basket). So if one stock or industry has a bad day, your other investments may help offset those losses.

If you’ve gone with a “set it and forget it” strategy — like investing in a target-date retirement fund, as many 401(k) plans allow you to do, or using a robo-advisor — diversification already is built-in. In this case, it's best to sit tight and trust that your portfolio is ready to ride out the storm. You’ll still experience some painful short-term jolts, but this will help you avoid losses from which your portfolio can't recover.

» Seeking a safe investment? Consider these low-risk options

3. Consider buying the dip

Market dips can also be a buying opportunity. Think of it as buying stocks on sale when the market crashes. The trick is to be ready for the fall and willing to commit some cash to snap up investments whose prices are dropping.

Here's how to tell if you might be ready to buy the dip: You already have an emergency fund, you’ve allocated money for retirement and you have cash available for everyday expenses. You’ve set aside some cash so you’re ready for a flash sale when disaster strikes, and you keep a running wishlist of individual stocks you would like to own.

If you do buy the dip, you probably won’t catch the market at its low, but that’s fine. The point of value investing is to be opportunistic on investments you think are worth more than their current market price and have good long-term potential.

Don’t be surprised if you freeze in place during the moment of opportunity. One strategy to overcome the fear of bad timing is to dollar-cost average your way into the investment. Dollar-cost averaging smooths out your purchase price over time and puts your money to work when other investors are huddled on the sidelines — or headed for the exits.

For long-term investors, a market downturn can simply mean stocks and other investments are on sale. If you're not already investing, you can take advantage by opening an investment account.

» Check out our picks for the best investment accounts.

4. Think about getting a second opinion

Being an investor is rewarding when the stock market’s on a tear and your portfolio is going up in value. But when times get tough, self-doubt and ill-advised tactics can take root. Even the most confident saver-investor can fall victim to harmful short-term thinking. Don't let self-doubt sabotage your financial plans.

Consider hiring a financial advisor to kick the tires on your portfolio and provide an independent perspective on your financial plan. In fact, it’s not uncommon for financial planners to have their own financial planner on their personal payroll for the same reason. An added bonus is knowing there’s someone to call to talk you through the tough times.

» Looking for an advisor? View our list of the best financial advisors

5. Focus on the long term

When the stock market declines, it can be difficult to watch your portfolio’s value shrink and do nothing about it. It’s normal to feel pessimistic after a crash, but if you’re investing for the long term, doing nothing is often the best course.

It's important to remember that when you sell investments in a downturn, you lock in your losses. Take the February 2020 COVID-related market crash. Say, you'd had $1,000 invested in an exchange-traded fund, or ETF, that tracked the S&P 500. Such a fund would have lost more than 30% of its value during that crash. If you had sold, you would have locked in that loss, but if you held onto it, you would have recovered your losses by that August.

If you plan to reenter the market at a sunnier time, you’ll almost certainly pay more for the privilege and sacrifice part (if not all) of the gains from the rebound.

6. Take advantage where you can

Watching your carefully curated portfolio take some unpleasant dips can be painful. But making moves for future-you could help offset some of that discomfort. Financial planners often point out that market declines can be good timing for Roth conversions. Investors can take stock of the depreciated assets in their traditional IRA and transfer some of that money into a Roth IRA. Once the market begins to recover, you can happily watch those migrated assets grow tax-free.

It's important to note that Roth conversions may not make sense for everyone, though. One concern is that they often trigger additional taxes since the transfer creates ordinary income. Talking with a tax professional can help clarify if the move makes sense for you.

» Ready to dive deeper? Roth IRA conversions and how they work

Stock market crashes in history

Even though the stock market has its roller-coaster moments, the reality is that stock market crashes aren’t that common. A few of the major U.S. stock market crashes of the past hundred years include:

1929: The stock market plunged in response to a contracting economy and investor panic, marking the onset of the Great Depression. The market bottomed out in 1932, more than 80% below peak prices, and took over two decades to recover.

1987: The market plunged 25% in response to market decline, investor panic and early computerized trading gone awry, on a day known as Black Monday. However, the market recovered within two years, and the Securities and Exchange Commission implemented trading curbs and circuit breakers to prevent panic selloffs.

2000: Following a surge of investing and speculation in internet-related ventures during the 1990s, the Dot-Com Bubble burst in March 2000. The S&P 500 dropped nearly 50% and took seven years to recover.

2008: In response to the housing bubble and subprime mortgage crisis, the S&P 500 lost nearly half its value and took two years to recover.

2020: As COVID-19 spread globally in February 2020, the market fell by over 30% in a little over a month. But by August 2020, the market had already rebounded, taking six months to recover.

How long does it take to recover from a stock market crash?

Not as long as you might think. The market has a long history of shrugging off mild to moderate drops — think 10% to 20% — in less than a year.

And even in the case of much more severe drops, investors can usually recover within five years, especially if they make consistent contributions to their investments during that time. (This is one reason for the rule-of-thumb that you shouldn't buy stocks with money you'll need within five years.)

You can play with our calculator below to see just how quick post-crash recoveries can be.

The bottom line on how to prepare for a stock market crash

From federal cuts to foreign tariffs, the stock market has been reacting to a lot lately. There have been several days when the market has fallen deep into the red. At such moments, it's natural to wonder: Is the stock market crashing?

Ultimately, it's not a question worth worrying about too much. If you own a diversified portfolio, focus on the long term, and consider taking advantage of market downturns when you can, you're already doing almost everything in your ability to be ready for the next crash.

Frequently asked questions about stock market crashes

Is a market crash coming?

There's really no reliable way to predict that. Besides, most people are likely better off building a resilient portfolio that can withstand market crashes, rather than trying to predict them, get ahead of them and profit from them.

I read about an expert who is predicting an upcoming stock market crash. Should I be worried?

Not every stock market crash prediction is wrong, but a lot of them are — and the only way to conclusively identify a crash is after it happens.

It's good to have a healthy skepticism of influencers, self-styled experts, or even well-credentialed economists who take to the internet to preach about an imminent market crash. In particular, watch out for crash-predictors who are selling books, stock picks, subscription services or other knowledge products that will supposedly protect the buyer from the crash in some way.

Helpful resources