Key lessons from 150 years of stock market crashes and economic downturns

Wall Street has fallen sharply and dragged global markets lower, as investor concerns grow about the impact of President Trump's policies on the US economy. In an interview on Sunday, Trump declined to predict whether there will be a recession in the U.S. economy this year. “There is a transition period, because what we are doing is very big.” Trump said.

Over the past 150 years, the stock market has experienced numerous crashes, from the Great Depression to more recent downturns like the 2020 COVID crash. While each crash was unique, they all shared a common outcome: recovery. Here's what we've learned from these turbulent times and how we can apply these lessons to today’s volatile market.

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1. Market crashes are inevitable, but recovery is possible

Market crashes are a natural part of the economic cycle. Over the last 150 years, the U.S. stock market has endured 19 significant downturns, each varying in severity. Some, like the Great Depression of 1929, saw losses of over 79%, while others, such as the COVID-19 market crash in 2020, were short but intense. Despite the fear and uncertainty during these times, history has shown that the market always recovers and moves to new highs.

2. Time in the market beats timing the market

One of the key takeaways from the past century and a half of crashes is that staying invested pays off. Whether through the Lost Decade of the 2000s or the Great Recession of 2007-2009, those who held onto their investments through the turmoil were ultimately rewarded. For example, an investment in the market in 1871, despite numerous crashes along the way, would have grown to over $31,000 by 2025. While the market's journey wasn't always smooth, the long-term growth far outweighed the short-term losses.

3. The recovery timeline is unpredictable

While market recoveries are a consistent trend, their timeline is not always predictable. For instance, the COVID-19 crash of 2020 saw a quick 4-month recovery, making it the fastest in history. In contrast, the dot-com bust and the 2007-2009 Great Recession took years to recover from, with the latter taking 12 years to return to previous highs. Therefore, investors must be prepared for volatility and the uncertainty of recovery times.

Key takeaways on stock market crashes:

• Predicting recovery is impossible: Each downturn has its own pace and severity, making it crucial to remain patient.
• Don’t panic during a crash: Investors who sell during market downturns often lock in losses. Staying invested is key to reaping future rewards.
• Market crashes are normal: History shows that despite the severity of the crash, the market always recovers in the long run.

The most severe market crashes in history

Some of the most impactful market downturns include:

• The 1929 Great Depression Crash: A massive 79% drop that took over four years to recover.
• The 1973-1974 Oil Crisis and Watergate: A 51.9% loss caused by political and economic factors.
• The Dot-Com Bubble & Great Recession: A 54% market drop that took over a decade to recover from.

Despite these crashes, the general lesson remains: the market always recovers. While timing the market is nearly impossible, consistent investing in a well-diversified portfolio that aligns with your risk tolerance is the most reliable strategy for long-term growth.