What to Do When the Market Crashes: A Rational Investor's Playbook
Market crashes are terrifying but temporary. Learn the specific actions rational investors take during crashes and why doing less almost always produces better results.
Market crashes feel like the end of the world when they are happening. Portfolio values plummet, headlines scream catastrophe, and the overwhelming instinct is to sell everything before it gets worse. This instinct, while natural, is the single most destructive impulse an investor can act on.
Every significant market crash in history has been followed by a recovery that exceeded the previous peak. Every single one. The investors who benefited from these recoveries were those who held their positions through the crash. The investors who suffered permanent damage were those who sold during the decline.
Knowing what to do when the market crashes is not about being brave or contrarian. It is about having a plan and a system that execute regardless of how you feel in the moment.
The Rational Investor's Playbook
Step one: do nothing to your allocation. Your target allocation was set during calm conditions when you could think clearly. The crash has not changed the fundamental reason for your allocation. Changing it now would mean making a major financial decision during a period of maximum emotional stress.
Step two: if possible, add to your portfolio. Crashes create opportunities to buy quality assets at discounted prices. Investors who added capital during the 2008 financial crisis or the 2020 pandemic crash saw extraordinary returns in the following years. Regular contributions during a crash are the closest thing to a guaranteed advantage in investing.
Step three: rebalance. During a crash, some themes fall more than others, pushing your allocation away from targets. Rebalancing buys more of the depressed themes at lower prices. This is mechanically simple but psychologically difficult, which is why automated rebalancing is so valuable during crashes.
The System That Executes When You Cannot
The playbook for market crashes is simple to understand and extraordinarily difficult to execute manually. The emotional intensity of watching your portfolio decline makes rational action nearly impossible for most investors.
Automated portfolio management executes the rational playbook without requiring rational behavior from you. It maintains your allocation. It rebalances into the decline. It keeps you positioned for the recovery that has always followed. This is when automation earns its keep.
Index500 maintains disciplined allocation through market crashes, ensuring your portfolio is positioned to capture the recovery that historically follows every significant decline.