How Much Money Could You Lose In The Next Market Crash?

Most market forecasters predict “increased volatility, but positive returns” for stocks in 2018. However, the truth is that no one knows when the next major market selloff will occur, how long it will last or how steep it will be.

If the last few weeks have reminded us of anything, it’s that markets can change suddenly and go down quickly.

During the crash of 2007/2008, markets saw gut wrenching declines of more than 50%. Since then the S&P, Dow Jones Industrial Average and other major markets have rallied into one of the longest running bull markets of all time. But this too shall end.

If the next major market decline were to happen tomorrow, how much money could you lose in the next market crash?

To find out, read on… 

First some perspective. A “market correction” is defined as one in which market values decline by 10% or more from their previous highs. The Dow Jones Industrial Average, for example, closed at an all-time high of 26,616 on January 26, 2018.

A 10% drop or garden-variety market correction would bring the DJIA down by over 2,600 points or to about 23,954. On February 8, 2018 the Dow closed at 23,860 marking the first market correction since August of 2016. Markets bounced up a bit at the end of March, but are back into correction territory today.

Market corrections like this come and go once or twice in most calendar years. Frequently they are over before you know they even occurred. Although they often make great headlines, short term market corrections have little, if any, impact on your long-term investment performance.

Bear markets are another matter. A “bear market” is defined as one in which the market declines by 20% or more from its previous high. In extreme cases (remember 2007/2008?) markets can decline by more than 50%!

If you need a little help with the math, that means your $50,000 college savings account could be cut in half by the time you make your first tuition payment.

And your $1 million dollar retirement plan? A 2008-like market drop could set your retirement back a decade.

While that might sound like hyperbole, consider the following numbers.

According to Putnam Investments, there have been 13 bear markets since 1948. On average, they lasted about 13 months and experienced an average decline of 25.8%. Of the 13 bears, 4 delivered losses of 30% or more. The most recent, 2007/2008, actually saw a market decline of over 50% during a sixteen-month period.

To read Putnam’s full report,  view it here.

On the bright side, bull markets (you know, when the market goes up) are more frequent and last longer than bear markets. Investors who properly diversify their portfolios, focus on the long-term and stay the course during the bad times usually fare better than market timers in the long run.

Stay calm and invest on. The trick to long-term investing is to remain invested in both good times and bad.

That’s way easier said than done, of course, especially when the economy tanks, the world looks like it’s going to blow up, and you start to realize that your accounts have lost more money than you earn in a year (or three).

To stick to your plan, you will need to know how much market risk is in your portfolio, and make adjustments if needed before the next bear market.

What is your Risk Number? Are you a 45? Or an 85? Everyone has a different risk tolerance, but most investors are unaware of how much their portfolio could actually go up or down in various markets.

If you are a relatively risk-averse “45” and your portfolio has a risk level of “85” you could be in for a painful surprise when the next bear market comes. Consider making a change now, while market values are still relatively high.

Riskalyze is a tool that helps investors (and their financial advisors) see how much their portfolio could go up or down under various market conditions.

If you worry about losing money during the next bear market, complete your risk assessment by using the Riskalyze tool at the bottom of this page. It will help you figure out how much risk you want, how much risk you need, and how much risk you actually have in your investment portfolio.

If you are client of mine, great news! We have already completed your risk assessment as part of our services to you. Feel free to contact me to review it or discuss it in more detail.

If you are not a client, feel free to get your free Portfolio Risk Analysis as my way to say “Thanks!” for subscribing to my blog. To assess your Riskalyze Risk Profile, click the link below. But don’t delay.  Markets can turn fast. Determine your risk profile now.



Free Portfolio Risk Analysis
  • How much risk can you handle? Click here to find out.