Markets have crashed, corrected, and rattled investors dozens of times over the past century — and in nearly every case, the people who stayedinvested came out ahead. Yet plenty of Canadians still bail the moment thingsget ugly. This one’s about why that keeps happening, and what actually preparesyou for the next downturn, whenever it arrives.
Since 1929, the S&P 500 has entered a bear market — a decline of 20% or more —roughly once every six to seven years, with a median drawdown of about 34%.Right now, markets are sitting at all-time highs, which is itself a fairly normal state of affairs: going back to 1919, the market has closed at an all-time high on roughly one out of every twenty trading days, about 5% of the time.
That “once every six or seven years” statistic is where people get tripped up. It’s tempting to look at a long stretch without a major crash and assume one is now “due” — but that’s the gambler’s fallacy in action. Markets aren’t a coin that owes you tails just because it’s landed on heads for a while. The same logic error shows up around average annual returns: the S&P 500 has only actually delivered a return close to its long-run average in roughly 7 of the last 100years. Almost every individual year is meaningfully higher or lower than “average”— which applies just as much to the timing of crashes as it does to annual returns.
Preparation splits into two pieces: the portfolio, and the mindset.
On mindset, the goal is to stop treating a crash as a surprise and start treating it as a scheduled, normal part of investing. Morgan Housel’s framing is useful here: every past decline looks, in hindsight, like a missed buying opportunity, while every anticipated future decline feels like pure risk — even though it’s the same phenomenon. He also draws a distinction between a fee and a fine. A fine implies you did something wrong. A fee is simply the cost of admission. Volatility is the fee you pay for the higher expected long-term returns that come with being invested in equity markets — not a penalty for a bad decision.
On the portfolio side, two levers control how much of that fee you’re exposed to at any given time: global diversification across many companies and countries, and the amount of fixed income mixed in. More bonds generally means a smoother ride and a lower expected return; the right balance depends entirely on your personal risk tolerance, risk capacity, and time horizon — which is exactly why portfolio design is a conversation, not a template.
A J.P. Morgan study looking at the S&P 500 from July 2004 to July 2024 puts a number on this. Staying fully invested the entire 20 years delivered a 10.5% annualized return. Miss only the 10 best days over that same stretch, and the return drops to 6.2%. Miss the 20 best days, and it falls to 3.6%. Miss the best 30 days — out of roughly 5,000 trading days across two decades — and the return collapses to 1.4%.
The uncomfortable part: those best days tend to cluster right after major downturns, when everything still feels shaky and uncertain. There’s no reliable way to know which specific days those will be in advance, which is the entire case for staying invested through the volatility rather than trying to sidestep it.
Excluding the Great Depression, the average bear market decline in the S&P 500 has been around 40%. Looking at what happens after the low point of each of those crashes: the average return one year later is +55%. Three years later, +83%.Five years later, +153%. The 2008–09 financial crisis is the most recent large-scale example — the months immediately following that low were some of the best in market history, which is exactly why they show up so often in these stats.
It’s worth noting that how badly any individual portfolio actually suffered in a crash like 2008 depended heavily on what it was made of. A portfolio concentrated entirely in one sector — tech, say — could have dropped 80–90%. A globally diversified equity portfolio might have dropped closer to 40–45%. A portfolio holding a meaningful allocation to fixed income, appropriate for someone nearing retirement, may have dropped only 20% or so. That’s exactly why portfolio design should happen well before a crash, matched honestly to your actual tolerance and capacity for risk — not adjusted reactively in the middle of one, which usually just means selling at the bottom.
If you’re dollar-cost averaging into the market on a regular schedule, a stretch of red days isn’t bad news — it means you’re buying into the global market at a discount. Logically, a younger investor with decades of runway ahead should want to see prices drop occasionally, not just climb every single day. Emotionally, it’s a genuinely hard thing to sit with while watching real dollars decline. One useful way to build that muscle early: let kids experience small financial wins and losses — a modest amount invested, or even just spending money to make mistakes with — while the stakes are low, so the emotional lessons land before the dollar amounts get serious.
A written financial plan and a written investment policy statement (or investment mandate) do a lot of the emotional heavy lifting when markets do turn. A financial plan built with realistic long-term return assumptions — not the inflated recent-years’ numbers — already factors in that downturns will happen along the way, so a crash a few years before retirement doesn’t have to mean starting over; the projections can show, concretely, whether you’re still on track. An investment mandate captures how and why you’re invested while you’re calm and thinking clearly, so that document — not a panicked, in-the-moment decision — is what you lean on when your portfolio is down and emotions are running high.
Market crashes are certain. So are the recoveries that follow them. The real question isn’t if or when the next one happens — it’s whether you’ve actually prepared: a financial plan that assumes downturns will happen, an investment mandate to anchor to, a portfolio genuinely built for your risk tolerance, and a mindset that expects volatility rather than being blindsided by it. And one caution in the other direction: don’t sit in cash waiting for the “right” moment to buy a dip that may not come for years — plenty of investors have done exactly that through a strong multi-year run and simply missed it.
Listen to episode 040 ofThe Chiro Money Show →
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