A Stock Market Crash is Always Coming

A Stock Market Crash is Always Coming

A stock market crash is always coming.  

A good friend of mine sent me an article last week written by the folks at motleyfool.com. Four Reasons the Market will Crash in the Next Three Months.

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The reasons they gave were:

  • Increased restrictions due to the virus
  • The vaccine euphoria would evaporate. (Remember in the last quarter of 2020, the stock market got a big boost on the vaccine news.)
  • Democrats would win the two Senate races in the Georgia runoffs. (This already happened.)
  • And history repeating itself.

Here’s the truth about the stock market.  The stock market goes up, it goes down, and then it goes back up, again. There is always a crash of some magnitude coming.

Crashes are Normal

Your definition of a crash and my definition of a crash are probably two different things. To me, a crash is a significant drop. What we saw last spring, that was a crash. Others include:

  • The “dot com” bust
  • the Great Recession
  • 1987
  • And the end of 2018, when the market dropped almost 20% over the course of three months.

You can look at the data going back into the 1920s and see that market crashes happen all the time.

Annual Corrections

The average calendar year correction since 1980 is -14%. The smallest was -3%. And the small corrections are rarer than the bigger ones.

The largest was -47%. That happened back in 2008. Last year, the correction was -35%. It was the second-worst drop in the last 41 years.

These events happen regularly. What is more important is what happens after the crashes. The stock market’s total return in 2020. was +18.4% last year. It erased the losses and produced a gain of almost 20%!

A stock market crash is always coming

Over the last 41 years,

  • There has been a drop of -10% or more at least 23 times
  • the market has gone down by more than -14% 16 times
  • and the compounded average annual return over the 41-year timeframe is +11.9% per year.

Stop and think about what has happened over the last four decades.

Despite all that happened, the stock market rewarded investors with an 11.9% average annual return.

Don’t worry about the headlines. You can write these stories every month from here to eternity. The crashes are going to happen. History shows us time and time again, those who weather the storms are rewarded.

Talk to a Certified Financial Planner™ Professional

 


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About the Author

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors.    He specializes in helping hard working, middle class families plan for retirement.

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