What Is a Stock Market Crash?
A stock market crash is a sudden, very large drop in stock prices, often over a few days. Crashes are usually driven by panic as much as by bad news.
Famous crashes
- 1929: the crash that led into the Great Depression.
- 1987: on Black Monday the Dow fell about 22% in a single day.
- 2008: the financial crisis, when big banks nearly collapsed.
- 2020: a sharp fall as COVID-19 spread, followed by a fast recovery.
What causes a crash
Usually a mix of high prices, lots of borrowed money and a shock that makes people afraid. As prices fall, people who borrowed must sell, which pushes prices lower still. Fear spreads faster than facts.
How to prepare
- Keep cash for emergencies, so you never have to sell in a crash.
- Hold a mix that matches your risk tolerance.
- Avoid heavy margin trading.
- Remember that markets have always recovered over time, though some recoveries took years.