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3 Reasons Not to Worry About a Stock Market Crash

By Maurie Backman – Aug 1, 2021 at 5:18AM

Key Points

  • Stock market crashes can be frightening events.
  • While stock market corrections are fairly common, full-blown crashes happen less frequently.
  • Either way, there's really no reason to panic when stock values start to fall.

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It's easy to get spooked by a market downturn, but here's why you shouldn't be.

When will the next stock market crash happen? It's almost impossible to say. Many experts were convinced that stocks would crash late last year or during the first half of 2021, mostly due to the fact that the market has been largely overvalued for a really long time. But that didn't happen.

Here's what we do know, though. The stock market is apt to tumble eventually. But that's not something that should cause you to lose sleep. Here's why.

Person at laptop with serious expression holding phone to ear.

Image source: Getty Images.

1. Stocks go on sale during downturns

Stock market crashes are typically regarded as a bad thing. But you're better off looking at them as an opportunity. When stock values drop, you, as an investor, get a prime opportunity to build out your portfolio on the cheap.

Say you've had your eye on a specific company whose share price has hovered around $500. Now, let's say the broad market tanks and stock values fall 20% across the board. Suddenly, you can scoop up those shares at $400 apiece, wait for the market to recover, and then profit big time.

2. Long-term investors typically aren't hurt by crashes

The stock market has undergone dozens of corrections (periods where stock values drop 10% or more) in its history, and it's managed to recover from every single one. Short-term investors may have gotten burned by corrections, but those who stayed invested for decades would've largely come out ahead.

If you adopt an investing strategy that involves buying quality stocks and holding onto them for decades, then you'll put yourself in a great position to get through a stock market crash unscathed. In fact, in the grand scheme of what could be a 40- or 50-year investment window, a single market crash may end up being quite meaningless.

Imagine you're in your 20s and are building a stock portfolio for retirement. The only time you should really be concerned with a market crash is within the five- to seven-year window before your target retirement date. And by then, you'll ideally have shifted some of your assets out of stocks and into safer alternatives like bonds anyway.

3. You can prevent losses during a crash by simply doing nothing

Simply owning stocks during a market crash won't cause you any financial losses. It's when you go out and sell stocks when they're down that financial damage occurs.

The solution? Don't make any moves when stock values plunge. It's really that simple. If you leave your portfolio alone and wait things out, you won't be negatively affected at all. Rather, all you'll be doing is looking at a loss on paper (or, these days, on screen).

Whether you're new to investing or have been building a portfolio for years, stock market crashes can be scary events. After all, it's very unsettling to see the value of your portfolio decline swiftly overnight. But one thing you must remember is that if you play your cards right, you can survive a stock market crash without taking any sort of financial hit. In fact, keeping your cool during a market crash could spell the difference between coming out unscathed and suffering serious losses.

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