What to do when the stock market crashes

Phase 1: The shock

Drops of 10% or more happen often, roughly every year or two on average since 1950, and most of them never become crashes. Today the most valuable thing you can do is usually less, not more.

Do this week

• Reread your plan (or your Tie to the Mast letter, if you wrote one). Your calm self made decisions for exactly this moment.
• Check your emergency fund. A crash hurts most when you have to sell investments to pay bills. If you have 3–6 months of expenses in cash, a market drop can’t force your hand.
• Turn off balance notifications and stock-app alerts for a week. Checking every hour doesn’t change the number, only how you feel.
• If you contribute automatically (401(k), TSP, IRA), know that those contributions now buy more shares per dollar.

Avoid this week

• Big decisions on the same day as scary headlines. Write down what you want to do and wait 72 hours.
• Moving everything to cash or the G Fund in one step. In 4 of the last 5 drops of 15%+ since 2003, that cost people money compared with holding.
• Anyone who calls or messages offering a “safe” place to move your money right now. Fear is when scams spike.

Good to know

• If markets fall sharply in one day, U.S. exchanges can pause trading under circuit-breaker rules. That’s a designed safety valve, not a sign the system is breaking.
• Bank deposits are FDIC-insured up to $250,000 per depositor, per bank, per ownership category, no matter what the stock market does.

Phase 2: The grind

Bear markets feel endless from the inside. Since 1950 they have ranged from a few weeks to over two years, and every one eventually recovered. Nobody, including us, knows how long this one lasts, so the goal is to make decisions that are good whether it lasts one month or two years.

Moves that make sense regardless of where the market goes next

• Keep contributing if your job and emergency fund are secure. Buying through a decline has historically been how long-term investors recovered faster.
• Rebalance back to your planned mix if your plan says to. That means trimming what held up and adding to what fell, on a schedule, not on a feeling.
• In taxable (non-retirement) accounts, ask a tax professional about tax-loss harvesting: selling an investment at a loss and buying a similar one, which can lower your tax bill. Watch the 30-day wash-sale rule.
• Ask a tax professional whether a Roth conversion makes sense for you. Converting while account values are down can mean paying tax on a smaller amount.

Moves that usually backfire

• Taking a 401(k)/TSP loan or hardship withdrawal to “ride it out.” You sell low, lose growth on the recovery, and a loan can become taxable if you leave your job before repaying it.
• Stopping contributions to “wait for the bottom.” The bottom is only visible months later.
• Leveraged or “crash-proof” products sold on fear. Ask what it costs, how you get out and who gets paid.

If your job is at risk

• Know your numbers now: monthly must-pay bills, months of cash, and which spending you can pause.
• If you lose job-based health coverage, you generally have 60 days to enroll in a Marketplace plan (special enrollment), and COBRA lets you keep your employer plan, usually at full cost. Compare both.
• File for unemployment the first week. Benefits generally start from when you file, not when you lost the job.
• Call your mortgage servicer or lender before you miss a payment. Ask what hardship options exist. Programs vary.

Phase 3: The deep part

Only a few drops since 1950 went this deep. This is when headlines say “this time is different” and when rescue packages usually start. Bottoms have historically come around the time help arrives, often before the news feels any better.

What to watch (without trying to trade it)

• Government and Federal Reserve responses. In past crises the market’s low came near the time a large, credible rescue was announced or passed, not after the economy looked healthy.
• Your own behavior. Are you still following your plan? If you changed it, was it written down and calm, or reactive?

Protect yourself

• Expect a wave of “stimulus,” “relief payment” and “recover your losses” scams. Government agencies won’t call, text or email asking for payment or account numbers to send you money.
• Gold, “guaranteed income” and “crash-proof” pitches spike now. Get the fees and the exit costs in writing before you sign anything, and sleep on it.
• Don’t let anyone pressure you into a decision on the same call.

Hope, with numbers

• Every S&P 500 drop of 30%+ since 1950 eventually recovered to a new high. Some took months; the worst took several years.
• People who kept investing through 2008–09 and 2020 were buying at the lowest prices of their careers. They didn’t know it at the time either.

Phase 4: The climb back

Recoveries are quieter than crashes. Use this calmer stretch to repair anything the drop exposed.

Do now

• Rebuild your emergency fund if you used it.
• Rebalance to your plan. Stocks may now be above your target if you kept buying.
• Write down what you did and how it felt. Then update your rules (or your Tie to the Mast letter) for next time, while the lesson is fresh.
• If you moved to cash or the G Fund during the drop, look honestly at what it cost, without beating yourself up. The goal is a better plan, not regret.