Still Waiting For The Market To Crash?

By: By Jack Strulowitz

Cast your mind back to 2008 for a moment. You were still carrying around a BlackBerry. Obama and McCain were going back and forth on your television every night. The Yankees were playing their final season at the old Yankee Stadium. It feels like a completely different world, and in many ways it was. But 2008 is also the year that the financial world came apart, and for a lot of people, the way they think about investing has never fully recovered.

The markets fell by more than fifty percent. People watched retirement accounts they had spent decades building lose half their value in a matter of months. And even though the economy eventually recovered, something deeper did not. A lot of people who lived through 2008 came out the other side with a kind of permanent flinch, a feeling that the next catastrophe is always just around the corner. It is like someone who got food poisoning at a restaurant once and now refuses to eat out ever again. One terrible experience starts to define every decision going forward, even when the circumstances are completely different. That is where a lot of investors have been stuck for almost 17 years now.

And that fear is not irrational. Another serious market downturn will happen eventually, and that is not a question of if, but when. Markets have always had periods of real pain, and they always will. But 2008 was not a normal downturn. It was a near collapse of the global financial system, driven by a very specific set of circumstances involving the housing market, irresponsible lending, and a chain reaction of failures across major institutions. It was genuinely historic. The fear it left behind makes complete sense. The problem is when that fear becomes the lens through which you view every piece of market news, every dip, every headline, because that is where it starts to cost you.

Here is what actually happened after 2008. The S&P 500 bottomed out in March of 2009. Since then, the market has had one of the strongest runs in history. But it has not been a smooth ride, and anyone who describes it that way is leaving out the uncomfortable parts. In late 2018, the market dropped nearly 20% in a matter of weeks over fears about interest rates and a trade war with China. In early 2020, COVID sent the market into the fastest bear market in history, falling over 30% in about a month. And in 2022, a combination of inflation, rising rates, and the war in Ukraine pushed the market down more than 25% from its highs. Each of those moments felt terrible in real time. Each downturn generated headlines about how the “big crash” had finally come.

But each time, the story played out differently than the headlines suggested. The 2018 decline recovered in about four months. The COVID crash took about five. The 2022 bear market dragged on longer, but was fully recovered by early 2024. Those recoveries happened to be relatively quick, but that does not mean the next one will be. Some recoveries take months. Some take years. The next downturn could look like 2018, or it could look a lot more like 2008. Nobody can tell you in advance. But there is a cost to sitting out entirely, and it is not theoretical. If someone moved to cash in 2015 because the market felt too high and a pullback seemed overdue, the S&P 500 has roughly tripled since then. The market was at all-time highs in 2015, and it felt scary. It was at all-time highs in 2017, and it felt scary then too. That is because the market is almost always near its highs, and that is not a warning sign. It’s simply what long term growth looks like from the inside. It never feels comfortable.

There is a well-known study that looked at what happens if you miss just the ten best trading days over a 20-year period. The difference is dramatic. A fully invested portfolio might return somewhere around 8 or 9 percent annually, while someone who missed those ten best days, which often come right on the heels of the worst days, might earn half that or less. You cannot predict when those days will happen. You cannot wait on the sidelines and then jump in at just the right moment. The math on that is very clear.

None of this is meant to dismiss the fear. If you have a family, a mortgage, tuition payments, and a retirement you are trying to fund, watching your portfolio drop 20 or 30 percent is not an abstract concept. It is real money. It is years of work. That fear deserves to be taken seriously. But fear, like any other emotion, can lead you to good decisions or bad ones depending on how you channel it. Being afraid of a crash and responding by building a thoughtful plan with real diversification and a clear understanding of your own risk tolerance is healthy. Pulling everything into cash and waiting indefinitely for the perfect moment to get back in is where things tend to go wrong. Nobody knows when the next crash is coming. Not your neighbor, not the talking heads on television, and certainly not the algorithm feeding you headlines designed to keep you anxious. What we do know is that the last 17 years have included multiple serious downturns and a global pandemic, and the long-term trajectory of the market has still been upward. That does not guarantee the future, but it does suggest that how you respond to uncertainty matters just as much as the uncertainty itself. 

Jack Strulowitz is a Financial Advisor at Bernath & Rosenberg in Cedarhurst, NY, where he helps high-net worth individuals and families manage their investments and build comprehensive strategies for retirement, tax, and estate planning. For questions or to schedule a consultation, please contact [email protected] or 847-962-3352.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Securities and advisory services offered through LPL Financial, a registered investment advisor, member FINRA/SIPC.