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Investing

What is a market crash?

The meaning

A sudden, sharp drop in investment prices, usually 20% or more in a short period. They feel alarming in the moment, and they almost always trigger a wave of people selling out of fear. But markets have recovered from every single crash in history. How to stay steady through one is what we cover in Why Market Crashes Don’t Scare Great Investors.

Example
Before$10,000
After a 25% drop$7,500
Every dollar dips 25% on paper. Investors who held on have seen recoveries, on no set schedule.
Walk through the numbers

If the market drops 25% in a month, a $10,000 portfolio shows about $7,500. Investors who kept investing through past crashes and held on have historically seen prices recover over time, though how long it takes varies.

Why it matters

Crashes feel scary but come with investing. The biggest mistake is usually selling during one and missing the recovery.

Read: Why Market Crashes Don’t Scare Great Investors →

Related terms

Bull and bear marketsA bull market is when prices are rising. A bear market is a drop of 20% or more.RecessionA broad slowdown in the economy, usually with job losses and less spending.Risk toleranceHow much ups and downs you can live with without selling.Dollar-cost averagingInvesting the same amount on a schedule, no matter what prices are doing.

See all 34 terms · Read the full glossary

For education only and not personalized investment advice. Examples are hypothetical illustrations, not a prediction or a promise of results. All investing involves risk, including the possible loss of principal.