What Should I Do If the Stock Market Crashes?
Last reviewed: July 2026
If the stock market crashes, the single best move for most long-term investors is to do nothing: stay invested, keep contributing, and avoid selling into the panic. A market crash is a temporary decline of 20% or more, and history shows that selling during one is how investors turn a paper loss into a permanent one. The investors who recover fastest are the ones who treat a downturn as a rebalancing and tax-planning opportunity, not an emergency exit.
Key Takeaways
- A market crash is a temporary decline of 20% or more, and every prior crash has eventually been followed by a full recovery.
- Selling during a crash locks in losses and risks missing the rebound, which often begins within days of the bottom.
- The S&P 500 fell 34% in 33 days during the 2020 crash, then fully recovered within roughly five months.
- Crashes create real opportunities: rebalancing, tax-loss harvesting, and Roth conversions at lower account values.
About the Author: Jeff Judge, CFP®, AEP®, ChFC®, CLU® is Managing Partner of Chesapeake Financial Planners in Forest Hill, Maryland. He has been helping families and business owners in Harford County and the Baltimore metro area navigate market volatility and downturns since earning his CFP® certification in 2013, by using Chesapeake Financial Planners’ signature process, the R.U.D.D.E.R. method™. Jeff has watched the same pattern repeat through every crash: the clients who do the most damage are the ones who confuse a temporary decline with a permanent loss.
What Counts as a Market Crash, and Why Do They Happen?
A market crash is a sudden, steep drop in stock prices, usually defined as a decline of 20% or more from a recent peak. That threshold also defines a bear market. Crashes happen for different reasons: recessions, financial system failures, geopolitical shocks, pandemics, or simply an overvalued market correcting itself. The trigger changes every time. The emotion driving the selloff does not.
Crashes are fueled by fear. When confidence breaks, selling accelerates, prices overshoot to the downside, and panic feeds on itself, the same way greed inflates prices during a bubble. According to the S&P Dow Jones Indices, the S&P 500 has gone through numerous bear markets since 1950, and each one felt like the end of the world while it was happening.
Here is the part that matters most: every market crash in U.S. history has been followed by a recovery and, eventually, a new high. That is the foundation of every decision below. Jeff Judge often tells clients that the market has a 100% recovery rate so far, and betting against that record has been one of the most expensive mistakes an investor can make.
What Is Market Volatility and How Should I Handle It?
What Should You Avoid Doing During a Market Crash?
The fastest way to damage a long-term plan is to act on emotion during a downturn. Avoid these specific mistakes, because each one converts a temporary decline into a lasting setback.
Do not panic sell. Selling during a crash locks in your losses and guarantees you miss the recovery. According to J.P. Morgan Asset Management, seven of the ten best market days over a 20-year period occurred within roughly two weeks of the ten worst days. If you sell to escape the worst days, you almost certainly miss the best ones, and missing just a handful of those top days dramatically lowers your long-term return.
Do not try to time the bottom. No one rings a bell at the low point. By the time a recovery is obvious, much of the rebound has already happened. Do not abandon your plan, either. If you built your strategy around your goals, timeline, and risk tolerance, a crash does not change those fundamentals.
Two more: do not check your portfolio obsessively, because constant monitoring amplifies anxiety and the urge to act, and do not overhaul your risk tolerance mid-crash. If a downturn keeps you up at night, that is useful information, but adjusting your allocation while prices are falling means selling low. Write it down and revisit it after markets stabilize.
How Can I Avoid Making Emotional Investment Decisions?
What Should You Actually Do When the Market Crashes?
The most powerful action during a crash is usually disciplined inaction paired with a few deliberate moves. Stay invested first. If your asset allocation was appropriate before the crash, it remains appropriate during it.
Then rebalance. A crash pushes your portfolio away from its target mix, typically leaving you underweight in stocks. Selling some of what held up to buy what fell forces you to buy low, which is the opposite of what panicked investors do. Keep contributing to your retirement accounts, or increase contributions if you can, because every dollar invested during a downturn buys more shares. Dollar-cost averaging through a crash accelerates wealth building once prices recover.
Review your emergency fund. Make sure you hold three to six months of expenses in cash so you are never forced to sell investments at a loss to cover a surprise. And focus on what you control: your savings rate, your spending, your tax efficiency, and your behavior. You cannot control the market. Jeff Judge frames it this way with clients: the crash is the test your plan was built to pass, and the people who keep funding the plan during the storm are the ones who look brilliant five years later.
This is where the R.U.D.D.E.R. Method™—Chesapeake Financial Planners' six-step planning process of Review and Recognize, Uncover and Understand, Design and Develop, Discuss and Decide, Execute and Empower, and Reassess and Refine—earns its keep, because a downturn is exactly when the Reassess and Refine step keeps emotion from rewriting a sound plan.
Is my portfolio diversified enough to handle market volatility?
What Opportunities Does a Market Crash Create?
A crash is not only a threat; for prepared investors it is one of the best planning windows available. Three opportunities stand out.
First, Roth conversions. Converting traditional IRA money to a Roth during a downturn means you pay tax on a lower account value, and the eventual recovery grows tax-free inside the Roth. If you were already planning a conversion, a crash can make it meaningfully cheaper. Second, tax-loss harvesting in taxable accounts: you can sell positions at a loss to offset gains elsewhere, then reinvest in a similar but not identical asset to stay invested while capturing the deduction. The IRS lets you use up to $3,000 of net capital losses against ordinary income each year, with the rest carried forward, per current IRS guidance.
Third, buying opportunities. If you have cash on the sidelines or new income coming in, a crash lets you buy quality investments at a discount. Some of the strongest long-term returns come from money invested during periods of maximum pessimism. A crash also reveals your true risk tolerance, which is worth acting on once markets stabilize.
How should my investment mix change as I get closer to retirement?
How Long Do Market Crashes Usually Last?
It varies widely, which is exactly why timing them is a losing game. The 1987 crash was violent but recovered relatively fast. The 2000 to 2002 bear market dragged on for more than two years. The 2008 financial crisis bottomed in March 2009, with a full recovery taking several years. The 2020 COVID crash was the fastest on record: down 34% in about 33 days before fully recovering within roughly five months.
The takeaway is simple. You cannot predict the length of a crash, so build a plan that does not require you to. Keep your time horizon in view, hold enough cash to ride out the worst stretch, and let the recovery do the work.
Should I manage my own investments or hire a financial advisor?
Frequently Asked Questions
Should I sell my stocks before a market crash?
No, trying to sell before a crash is market timing, and it rarely works. Predicting the exact top is nearly impossible, and investors who move to cash often miss the eventual recovery because the strongest rebound days tend to cluster near the bottom. Staying invested with an allocation matched to your timeline is the more reliable approach.
What is the difference between a market correction and a crash?
A market correction is a decline of 10% to 20% from a recent peak, while a crash or bear market is a drop of 20% or more. Corrections are common and often short-lived. Crashes are deeper and tend to last longer, but both have historically been temporary, with the market eventually recovering and reaching new highs.
Should I stop contributing to my 401(k) during a crash?
No, you should keep contributing and consider increasing contributions if you can afford it. During a crash your regular contributions buy more shares at lower prices, which boosts long-term returns when the market recovers. Pausing contributions means you miss the chance to buy at a discount, working directly against your retirement goals.
Is a market crash a good time for a Roth conversion?
Yes, a market downturn can be one of the best times to convert traditional IRA funds to a Roth. Because account values are lower, you pay income tax on a smaller balance, and any recovery then grows entirely tax-free inside the Roth. The strategy works best when you have cash outside the IRA to cover the tax bill.
How much cash should I keep so I am not forced to sell during a crash?
Most households should keep three to six months of essential expenses in cash or cash equivalents, and retirees often benefit from holding one to two years of spending. This buffer means a crash never forces you to sell investments at a loss to cover bills, letting your portfolio stay invested through the recovery.
Will the stock market always recover after a crash?
Historically, yes, every U.S. stock market crash has eventually been followed by a full recovery and a new high. There is no guarantee any single company or sector recovers, which is why diversification matters, but a broadly diversified portfolio has consistently regained and exceeded its pre-crash value over time. Recovery length has ranged from months to several years.
If you are weighing how to position your portfolio before the next downturn, a second opinion costs you nothing. At Chesapeake Financial Planners, we help business owners and pre-retirees build plans designed to survive a market crash without forcing panicked decisions. Visit chesapeakefp.com to learn more.
Disclosures
The information provided is for educational purposes only and should not be construed as investment advice. Investment strategies should be tailored to individual circumstances, risk tolerance, and goals. Past performance doesn't guarantee future results. Consult with qualified financial professionals regarding your specific situation.
Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.
A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.
Advisors associated with Chesapeake Financial Planners may be either (1) LPL Financial Registered Representatives offering securities through LPL Financial, Member FINRA and SIPC, and investment advisor representatives offering investment advice through Great Valley Advisor Group; or (2) solely investment advisor representatives offering investment advice through Great Valley Advisor Group and not affiliated with LPL Financial. Great Valley Advisor Group, and Chesapeake Financial Planners are separate entities from LPL Financial.
