What We've Learned from 150 Years of Stock Market Crashes

A popular post that is often given to folks who are freaking out about drops in their portfolio:<p>* <a href="https:&#x2F;&#x2F;awealthofcommonsense.com&#x2F;2014&#x2F;02&#x2F;worlds-worst-market-timer&#x2F;" rel="nofollow">https:&#x2F;&#x2F;awealthofcommonsense.com&#x2F;2014&#x2F;02&#x2F;worlds-worst-market...</a><p>And for those who want to sit on the sidelines, that&#x27;s usually not a good idea:<p>* <a href="https:&#x2F;&#x2F;ofdollarsanddata.com&#x2F;even-god-couldnt-beat-dollar-cost-averaging&#x2F;" rel="nofollow">https:&#x2F;&#x2F;ofdollarsanddata.com&#x2F;even-god-couldnt-beat-dollar-co...</a><p>The main folks that do have to worry about their portfolio are those who are about to retire, and those that have just retired, but there are strategies for that (against sequence of return risk):<p>* <a href="https:&#x2F;&#x2F;www.kitces.com&#x2F;blog&#x2F;managing-portfolio-size-effect-with-bond-tent-in-retirement-red-zone&#x2F;" rel="nofollow">https:&#x2F;&#x2F;www.kitces.com&#x2F;blog&#x2F;managing-portfolio-size-effect-w...</a>

While dollar cost averaging and index investing are solid strategies, this article overlooks an important consideration: the Realistic Rate of Return (RoR) needed for retirement planning. Yes, US markets historically recover (lately that notion seems to be challenged more often than not), but timing matters significantly.<p>What happens if someone&#x27;s retirement coincides with a market crash? Younger investors have time on their side for recovery, but as retirement approaches, blindly following market-based strategies without carefully considering your required rate of return could be problematic. Age-appropriate risk management becomes increasingly important as your investment horizon shortens.

Hm, interesting article but I wish they had included global data as well. For example, stock market crashes in Japan and other countries. As I understand it, Japan still hasn&#x27;t quite recovered from its crash more than 30 years ago.

&gt; Though they varied in length and severity, the market always recovered and went on to new highs.<p>Not in Japan it didn&#x27;t. If you bought a Nikkei 225 index in December 1989, your returns are negative to this day (apart from a very brief breakeven in 2024): that&#x27;s 35 years and counting of the market not recovering and going on to new highs. And Japan&#x27;s experience is probably going to become the norm rather than the exception, now that everwhere else is catching up to it demographically.<p>&quot;The market always goes up in the long run&quot; was an adage for a world of steady population and productivity growth, which is not the world we have now.

For years I&#x27;ve been reading commentators tell me that QE completely and permanently changed the nature of valuations in US markets. Now, perhaps, we&#x27;ll finally get to see whether that&#x27;s actually true or not.<p>If they&#x27;re right, no sweat. If they&#x27;re wrong, a recession will trigger a substantial downward revaluation of assets. For a picture of what that might look like, I suggest reading John Hussman&#x27;s market commentaries, available free online.

If we look at the article&#x27;s worst five crashes:<p><pre><code> 1. 1929 Crash &amp; Great Depression 2. Lost Decade (Dot-Com Bust &amp; Global Financial Crisis) 3. Inflation, Vietnam, &amp; Watergate 4. WWI &amp; Influenza 5. Great Depression &amp; WWII </code></pre> Regarding the Great Depression (#1,4,5). The story that is often overlook according to the historians I have read is how the lack of a Federal Reserve and FDIC contributed to the Great Depression. As there was no Federal Reserve, little regulation, and no FDIC deposit insurance... when banks failed all of their customers became financially penniless. The reason why many of those banks failed was that they were at the &quot;edge&quot; already due to farmers taking out massive loans during WWI as American grain was in demand and when the war ended, many of those loans went bad. When the stock market crashed, that was the straw that broke the camel&#x27;s back. If we had a Federal Reserve and FDIC back then, many of those issues could have been prevented.<p>#3 was a combination of the Arab Oil shocks and the Vietnam War dragging down the economy.<p>#2 is still a mystery to me. I don&#x27;t understand how a speculative bubble was allowed to develop including the mortgage backed securities nonsense could trigger a decade long recession. I assume it was due to the repeal of <a href="https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Glass%E2%80%93Steagall_legislation" rel="nofollow">https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Glass%E2%80%93Steagall_legisla...</a>?

SP500 is down like 8% from the ATH, which BTW was less than 3 weeks ago. People need a little perspective. I lived through the GFC and the Dotcom bust, this is nothing (so far).

<a href="https:&#x2F;&#x2F;www.federalreserve.gov&#x2F;econres&#x2F;feds&#x2F;files&#x2F;2023041pap.pdf" rel="nofollow">https:&#x2F;&#x2F;www.federalreserve.gov&#x2F;econres&#x2F;feds&#x2F;files&#x2F;2023041pap...</a><p>This exploratory federal reserve article argues that much of the recent (i.e. 1989-2019) gains were categorically the result of corporate tax cuts. Perhaps one way of examining the new DOGE initiative.

From a ROTW perspective (I think we tend to own US tech stocks): The USD is also crashing. Double whammy.

Tangential question, as I am not an economist and don&#x27;t pretend to understand any of this: what would happen if the stock market <i>didn&#x27;t</i> recover? (Surely, it could happen? Past performance is no guarantee of future results.)<p>The economy would effectively collapse, and I imagine our currency would be mostly worthless. People would withdraw what they could from bank accounts, which wouldn&#x27;t be able to produce all the funds, so FDIC insurance would kick in, effectively printing money, but the economy has collapsed anyway?<p>^ That&#x27;s just my intuitive speculation. I can&#x27;t really grasp the scenario of stocks never recovering. Anyone with some education&#x2F;background have a good explanation? (Not sure I want to trust AI with this question.)

Subtitle:<p>&gt; Though they varied in length and severity, the market always recovered and went on to new highs.<p>True. But that only works if the nation itself recovers and goes on to new highs.

Wait a minute... The S&amp;P 500 just started spiking back up about 20 minutes ago. It&#x27;s still down 2.46% for the day -- but that&#x27;s a much smaller number than the drops reported this morning.<p>Maybe the real question is: What have we learned from the last 150 minutes?

People say not to time it but if you took your profits December ish you’re probably much happier than if you had lost everything since then and reset to 6-12m ago unless you’re playing the short. There is a premium on mental health and market volatility.

US giving up its place after 80 years so the gerontocracy can still feel relevant and in charge is a black swan event. We’ll correct to 30% of current value and trade sideways for 20 years.<p>Regular people talking about making money while giving up the world order? Rofl. You’re not in the club! Carlin already told you that.

I&#x27;m about 15 years out. I think what would be worse for me is to have a dead decade where everything is just flat.

She writes like she has 5 years of experience.