What should I do with my investments when the market crashes?
If you are still saving, usually very little: keep contributing and rebalance to your mix. Selling after a fall turns a paper loss into a real one, and the fall is when a runway earns its keep.
If you are still years from drawing on your savings, the usual answer is to do very little: keep investing as you were, rebalance back to your chosen mix, and avoid selling. The decisions that protect you in a crash are made before it — an emergency fund, a runway of safer money for anything due soon, and a mix of shares and bonds you can actually hold. Selling after a fall turns a fall in price into a permanent loss.
Falls are a normal part of owning shares
The S&P 500 lost 43.8% in 1931, 36.6% in 2008 and 18.0% in 2022, each including dividends. The US market went on to recover from each of those falls, but recovery has no timetable. Japan’s Nikkei 225 closed at 38,915.87 on 29 December 1989, fell to 7,054.98 by March 2009 (about 82% lower), and did not close above its 1989 peak until 22 February 2024: more than 34 years. That is a price index without dividends, so a Japanese investor collecting dividends did somewhat better, but the lesson stands: one market can stay down for a working lifetime.
What reacting costs
Morningstar’s 2025 Mind the Gap study measured what investors actually earned, given when they bought and sold. Over the ten years to the end of 2024, the average dollar in US funds and ETFs earned 7.0% a year, while the funds themselves returned 8.2%. The 1.2-point gap, about 15% of the return, came from the timing of purchases and sales — and it was widest in the funds whose investors bought and sold most heavily.
What to do instead
- Check your emergency fund. If a job loss would force you to sell shares, that is the gap to close first (how big it should be).
- Check what is due soon. Money you need within a few years should not have been in shares; if some is, move it gradually rather than all on the worst day.
- Keep contributing. Regular contributions buy more units while prices are low.
- Rebalance to your mix. The SEC describes rebalancing on a calendar or when a weight drifts past a band; after a fall, that means buying shares with money from bonds or new savings.
- Change the mix later, not today. If the fall showed you hold more risk than you can bear, adjust gradually once markets are calmer, and write down why.
If you are already drawing on your savings
It is different once you are selling to live. Every unit sold at a low price is gone before the recovery, so a fall early in your drawdown does lasting damage (why). That is what a runway of cash and short bonds is for: it lets you pay a few years of bills without selling shares at the bottom. On the Freedom Ladder this is the Sustenance rung, whose job is income stopping.
Retirement Tracker
Workable Lasts, with a modest cushion
- A 2008-style crashRuns out at 83
- Your money abroad buys 15% lessLasts to 90, ₹3.96Cr lower
- Both togetherRuns out at 82
| Age | Stage | Opening | Growth | Income | Outflow | Closing |
|---|---|---|---|---|---|---|
| 54 | Working | ₹7.22Cr | +₹81.5L | ₹1.4Cr | −₹98.7L | ₹8.45Cr |
| 55 | Retired | ₹8.45Cr | +₹58.2L | — | −₹29.75L | ₹8.73Cr |
| 56 | Retired | ₹8.73Cr | +₹60.15L | — | −₹30.94L | ₹9.02Cr |
The Retirement Tracker for the illustrative household: savings rising to independence at 55 and lasting to 90 in the plan; with two stress tests composed onto one line, the money runs out at 82.
- Your plan — the line your own figures and rates produce.
- A 2008-style crash + your money abroad buys 15% less — two stress tests drawn as one line, never replacing your plan.
Illustrative figures — not anybody’s real plan.
Testing a crash in your plan
Nivritee’s stress tests include A 2008-style crash, a 35% fall applied five years after you stop earning, and A dot-com style slump, a 25% fall in your first year after. For the illustrative household, the crash alone moves the plan from lasting to 90 to running out at 83. Seeing that number in calm conditions is what lets you decide on a runway before you need one.
Sources
- Historical Returns on Stocks, Bonds and Bills: 1928–2025 — Aswath Damodaran, NYU Stern School of Business (figures as of 2026-01-05)
- Nikkei Stock Average, Nikkei 225 (NIKKEI225), daily close — Federal Reserve Bank of St. Louis (FRED), data from Nikkei Inc. (figures as of 2026-10-01)
- Mind the Gap 2025 — Morningstar (Jeffrey Ptak), August 2025 (figures as of 2024-12-31)
- Beginners’ Guide to Asset Allocation, Diversification, and Rebalancing — U.S. Securities and Exchange Commission
- Investor Tips for Turbulent Markets — FINRA (figures as of 2024-11-26)
See this in your own plan.
Open Retirement TrackerLast reviewed 1 October 2026.
This is general information, not advice for your circumstances. Rules and limits change; check the official source for your country, and consult a licensed professional before making financial decisions.