What to do when the market falls

A falling market feels like an emergency, but it is one of the most normal things in investing — corrections and crashes arrive on their own schedule, and always have. In early 2020 the S&P 500 dropped about 34% in five weeks; it then recovered and finished that same year up 18.4%. In 2022 it fell 18.1% over the year and has since gone on to new highs. The prices change violently; the long-run direction, for a diversified holder who stays invested, has not.

Are stock market crashes normal?

Yes — they are a recurring feature, not a sign the system is broken. Sharp declines of 10%, 20%, even 30% or more show up regularly across market history, usually clustered around fear about the economy, and they have so far always been followed by recovery to new highs. The 2020 example is the cleanest: a one-third fall and a full recovery inside the same calendar year. Knowing this in advance is what lets you treat a crash as weather rather than catastrophe. My own portfolio's record-high and drawdown history shows the same rhythm on real money: every dip below a previous peak, and how long each one took to recover.

What's the biggest mistake investors make in a crash?

Selling. Turning a temporary, on-paper decline into a permanent, realised loss is the single most expensive thing a long-term investor can do, and crashes are engineered to tempt exactly that. It gets worse, because the market's best days tend to cluster right next to its worst ones — sell near the bottom and you miss the rebound that does most of the healing. The market doesn't punish volatility; it punishes the reaction to it.

How do you prepare before a crash?

You make the decisions while you're calm, because you won't be calm in the moment. The foundation is an emergency fund of three to six months' expenses, held in cash, so a job loss or a broken car never forces you to sell investments at the worst possible time — the same buffer the how-to-start guide puts first. The rest is owning a mix you can actually sit through and avoiding leverage, which turns a survivable drop into a forced sale. A plan written in calm is what you fall back on when the screen turns red.

Is a falling market actually an opportunity?

For anyone still buying, yes — lower prices mean you acquire more ownership for the same money and lock in higher future returns. This is why the most useful posture in a downturn is patience backed by a little cash, not panic: the crash is doing the discounting for you. In the portfolio, the most common action in any given month is none, and downturns are when the rare exceptions get made — buying good businesses the crowd is selling. The philosophy page sets out the guardrails that make sitting still possible; compounding is what rewards it.