3 Things You Shouldn't Do if the Stock Market Crashes
What happened after 1929 was that so many people had been traumatized by the stock market crash that there was a lost generation. It was really only in the 1950s and '60s that enough years had passed that a new generation came along that had not been scarred by 1929 that rediscovered the stock market. -- Ron Chernow, author of The House of Morgan and The Warburgs
That's such a sad passage, and it simply reflects human nature. When we go through traumatic events, it can end up changing us -- for the better and/or worse. The 1929 stock market crash was an extreme event, followed as it was by the Great Depression. But we investors today will face stock market crashes of our own now and then -- and there are some things we shouldn't do at those times. Here are three such things.
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1. Don't panic
This is vital: Don't panic -- because market downturns and even crashes simply happen -- and not that infrequently. According to the Schwab Center for Financial Research, for example, the stock market experiences a "correction" -- a drop between 10% and 20% -- about every other year. (That's based on the 20 years between 2001 and 2021.) That might seem alarming -- until you realize that the stock market has recovered from most drops fairly quickly: "Despite these pullbacks, however, stocks rose in most years, with positive returns in all but 3 years and an average gain of approximately 7%." Stock market analytics company Yardeni Research looked at data going back to 1950, and found that stock market corrections happened about every 1.9 years, with 32 of them lasting less than a year and 24 lasting less than four months.