The global market crash of 2008 ushered in the Great Recession. Investors and businesses rushed to dump stocks and liquidate assets as they lost confidence. Global economies suffered from lower consumer spending, bankruptcies, bank failures and economic slowdowns.
While markets have sophisticated safeguards against crashes, including circuit breakers that pause trading when prices decline too quickly, they’re still susceptible to a trigger that exposes hidden weaknesses in the system. The hallmark of every crash is the convergence of an unexpected event with a market’s underlying weaknesses.
Using Kaplan’s “pain index,” we ranked the 19 largest stock market crashes since 1870 based on the duration of the decline, its peak-to-recovery cycle and the amount of stock market value lost. We also included the duration of the longest bear market, the downturn following the Russia-Ukraine war in December 2021 and intense inflation, as well as the COVID-19 crash of March 2020 that triggered lockdowns, supply shortages and policy responses.
While it’s impossible to predict when a global market crash will happen, it is important for investors to understand the characteristics of past crashes so they can take precautionary measures and plan for potential losses. To reduce your risk, consider investing in a diversified portfolio that fits your time horizon and tolerance for volatility. Diversification helps you reduce exposure to any one market and may help offset sharp price drops in certain asset classes or regions. Having cash on hand or a margin reserve can also cushion you against sudden price declines by allowing you to sell stocks and other assets when they become overvalued.