Please ensure Javascript is enabled for purposes of website accessibility

Will the Stock Market Crash in 2021? 3 Things to Know

By Katie Brockman – Sep 14, 2021 at 6:00AM

Key Points

  • The stock market has experienced a phenomenal 18 months, but some people worry a downturn is on the way.
  • Downturns aren't as daunting as they may seem, and there are ways to protect your money.

Motley Fool Issues Rare “All In” Buy Alert

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

If a market downturn is looming, you need to be prepared.

The stock market has been on a wild ride over the past year and a half. After losing more than one-third of its value in a matter of weeks during the early stages of the COVID-19 pandemic, the S&P 500 is up nearly 100% since last March.

Some people believe all this growth is too good to be true, though, and that the market is overvalued. That means a market correction could be on the horizon to bring prices back down.

The truth is that nobody can predict exactly when a downturn will occur, how severe it will be, or how long it will last. That said, if you're concerned about an upcoming market crash, there are a few things to keep in mind.

Person sitting at a desk looking at a laptop

Image source: Getty Images.

1. Stock market downturns are relatively common

Market downturns can be alarming, but they happen more frequently than you might think. In technical terms, a "correction" refers to any time the market falls by 10% to 20%. A "crash" is a sudden drop by more than 20%, and we're in bear market territory when the market falls by more than 20% and doesn't recover right away.

Since 1928, the S&P 500 -- one of the major benchmarks of stock market performance -- has experienced more than 50 downturns in which the market fell by 10% or more, according to data from consulting firm Yardeni Research. Of those downturns, 21 could be classified as crashes or bear markets.

The stock market is cyclical, and market downturns can actually be healthy. Stock prices can't keep climbing forever, so regular dips are normal and happen quite frequently.

2. The market has a long history of recovering from falls

It may not be too reassuring to know that market crashes can happen regularly, but the good news is that it's also very likely the market will recover. Of all the crashes and corrections the market has experienced over the years, there has never been a single instance in which it didn't bounce back eventually.

That's quite the feat, considering the market has been through the wringer in the past. When the dot-com bubble burst in the early 2000s, for example, the S&P 500 fell by nearly 50%. During the Great Recession, the market lost more than 56% of its value between 2007 and 2009.

Yet despite those significant downturns, the S&P 500 is still up by more than 200% since 2000.

^SPX Chart

^SPX data by YCharts

In other words, even if the market does experience a correction or even a crash sometime this year, you can rest easily knowing there's a very good chance things will get better.

3. By investing for the long term, you can keep your money safe

One of the most intimidating aspects of market crashes is that nobody knows for certain when they will happen. The worst crashes are often triggered by factors outside our control -- like a housing market crisis or a global pandemic -- and it's easy to feel helpless when stock prices start falling.

The one thing you can do to protect your money, however, is to invest for the long term. Long-term investing involves buying strong stocks and holding them for years or even decades, regardless of what the market does.

Strong, healthy companies are more likely to survive market volatility. By filling your portfolio with solid stocks, your investments have a much better chance of bouncing back if the market does experience a downturn.

Nobody knows for sure whether a market downturn is on the horizon, but you can prepare for it by building a solid investment portfolio and choosing the right stocks. Whether the market crashes or not, you'll be prepared for anything.

The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
351%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.