A 30% decline in the Stock Market
A student asks:
My question is about potential problems. Let’s say the market goes down 20% or even 30%. Can I be happy? No. But, investing for more than 12 years already (especially DCA) – I think of this kind of decline as “time travel” back two or three years back. Wouldn’t this be a good thing?
Has there ever been a bad time travel movie?
I say no.
Biff Tannen would probably have gotten a lot richer in Back to the Future II if he had been holding the stock market almanac instead of the Sports Almanac.
Ah well. He didn’t look like a stock guy.
I like to relate the concept of timing to the stock market.
Let’s look at the chart:
If the US stock market were to drop 30% from current levels, it would bring us back to where it was in January of 2024.
Things weren’t so bad in January 2024, were they? I’ll bet you’d like to go back and buy more stocks and know what we know now.
The problem is that a 30% crash will make it sound like a 40% drop is the next trend. A 40% reduction will restore the market in May 2023.
If a stock goes down 40% a 50% crash will feel inevitable. That would erase nearly all of the gains over the decade, returning the stock market to September 2020 levels.
A 30-50% loss in size would not sound good. Something could go very wrong for that to happen.
If you keep dollar costs going into stocks during a crash it can hurt in the short term but probably make you happier in the long run.
Of course, the stock market doesn’t hit in a vacuum. It usually happens because of a financial crisis or recession that increases the unemployment rate.
I still remember a conversation with friends during the Great Financial Crisis. It was 2008 and we had no idea how long this crisis would last.
Another friend pointed out that those of us who keep our jobs will live.1 We can keep putting money into our 401ks at lower and lower rates. As long as we are patient, things will be fine. But those who lost their jobs or homes will be set back years.
It’s an old saying that a recession is when your neighbor loses his job. Depression when you lose yours.
And my friend was right.
The labor market has been slow for many years coming out of the 2008 crisis. But anyone who kept their job, kept paying the mortgage and kept making 401k contributions like gangbusters.
It only lasted a few years.
Investing during a market crash depends on your guts but also your circumstances.
A 30-40% time travel into the past wouldn’t be the worst thing in the world for netizens with a long horizon…as long as you don’t suffer personal stress over it.
We covered this question in the last Ask 2025 Combination:
Some of the questions we discussed were about buying bitcoin directly vs. an ETF (courtesy of Eric Balchunas), crypto stocks vs. tech, gas prices versus the recession, and how to turn your investments into an investment plan.
1This was a few years after I graduated from college and we were newlyweds. Neither of us had families yet and we were starting to buy our first homes.
This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any way as professional advice, or an endorsement of any procedures, products or services. There can be no assurances or guarantees that the opinions expressed herein will apply to any particular facts or circumstances, and should not be relied upon in any way. You should consult your own advisors regarding legal, business, tax, and other related matters relating to any investment.
Comments in these “posts” (including any related blog, podcasts, videos, and social media) reflect the personal views, opinions, and analyzes of the Ritholtz Wealth Management employees who provide those comments, and should not be considered the opinions of Ritholtz Wealth Management LLC. or its various affiliates or as a description of the advisory services provided by Ritholtz Wealth Management or the performance returns of any client of Ritholtz Wealth Management Investments.
References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute investment recommendations or an offer to provide investment advisory services. Charts and graphs are provided for informational purposes only and should not be relied upon in making any investment decision. Past performance is not indicative of future results. The content speaks only from the indicated date. Any projections, estimates, forecasts, targets, objectives, and/or opinions expressed in these materials are subject to change without notice and may differ or conflict with the opinions expressed by others.
Compound Media, Inc., an affiliate of Ritholtz Wealth Management, receives payment from various companies for advertising on affiliate podcasts, blogs and emails. The inclusion of such advertisements does not imply or imply the endorsement, sponsorship or recommendation of, or any affiliation with, the Content Creator or Ritholtz Wealth Management or any of its employees. Investing in securities involves the risk of loss. For more ad disclaimers see here:
Please see the disclosure here.
