The Market Is Sinking: Here’s Why Smart People Stay Calm – and Panicking People Lose Money (Even if You Have No Money in the Markets...This is For You)

The Jack Hopkins Now Newsletter #284

As I write this, I have no idea how many of my subscribers this applies to. I would surmise that it’s more than a handful in one way or another. Whether you have money in a 401k, IRA, or other retirement or wealth-building investment in the markets, there’s something in this issue of The Jack Hopkins Now Newsletter for you.

If you don’t have a dime invested and keep any money you have in a savings/checking account, you will still benefit from the psychological aspects of what I discuss, which can be applied to other areas.

Stock market crashes are one of the most nerve-wracking experiences for investors. Whether it’s a global financial crisis…a sudden economic downturn…or unforeseen geopolitical events, watching your portfolio take a nosedive can trigger fear, anxiety, and the urge to make hasty decisions.

However, history and experience show that panicking during a market crash often leads to more harm than good.

While it's natural to feel concerned...there are strong reasons...and plenty of them...to remain calm and stay the course during turbulent times.

Here are three key reasons you shouldn't freak out when the market crashes.

1. The Market Has Always Recovered

One of the most reassuring facts about stock market crashes is that they have always been followed by recoveries. While the timing and speed of recovery can vary, history proves that downturns are temporary, and markets eventually rebound.

Consider some of the most significant stock market crashes in history:

The Great Depression (1929):

The worst market crash in U.S. history led to massive unemployment and economic hardship. However, those who stayed invested saw their holdings recover in the following decades.

Black Monday (1987):

The Dow Jones Industrial Average plunged 22% in a single day. Despite the panic, the market fully recovered within two years.

The Dot-Com Bubble (2000-2002):

Many technology stocks collapsed, wiping out billions in market value. Yet, companies that survived and adapted thrived in the long run.

The 2008 Financial Crisis:

This was one of the most severe downturns in recent memory, with the S&P 500 losing nearly 50% of its value. However, the market rebounded strongly in the following years, hitting new record highs.

The COVID-19 Crash (2020):

In early 2020, the stock market fell dramatically due to pandemic fears. But within months, it recovered and went on to reach all-time highs.

What these examples prove is that while crashes may feel devastating in the moment, they are not permanent.

Investors who stay patient and avoid emotional decision-making are often rewarded when the market bounces back.

2. A Market Crash Is a Buying Opportunity

Instead of seeing a crash as a catastrophe, experienced investors view it as a chance to buy stocks at a discount. The stock market operates in cycles, and downturns present opportunities for long-term wealth building.

Legendary investor Warren Buffett is known for his famous quote:
"Be fearful when others are greedy, and be greedy when others are fearful."

What does this mean? When the market is booming and everyone is optimistic, stocks are often expensive. But when fear takes over and stock prices plummet, that’s when savvy investors find bargains.

For example, during the 2008 financial crisis…stocks of high-quality companies were selling for a fraction of their previous value.

Investors who bought during the crash saw massive gains in the years that followed.

Similarly, during the COVID-19 crash in March 2020, those who invested in solid companies at their lows made substantial returns as the market rebounded.

Of course, this depends on many factors.

For example, if you have already retired and are funding part or all of your retirement with your investments and are no longer generating income and investing, then this doesn’t really apply to you.

For long-term investors…market crashes are opportunities to accumulate valuable assets at lower prices. Instead of panicking, consider re-evaluating your portfolio and identifying potential investment opportunities.

3. Your Long-Term Plan Matters More Than Short-Term Drops

One of the biggest mistakes investors make during a crash is letting emotions drive their decisions.

When stock prices fall, many panic and sell their investments, fearing further losses.

However, this often locks in losses that could have been recovered over time.

Successful investing is about playing the long game.

If you’re investing for retirement, wealth-building, or future financial goals, short-term market fluctuations should not deter you from your overall plan.

Consider these key principles:

Time in the market beats timing the market.

Trying to predict when to sell and when to buy back in is nearly impossible. Studies show that missing just a few of the market’s best recovery days can significantly hurt long-term returns.

Market downturns are temporary, but long-term growth is permanent.

The S&P 500, despite multiple crashes, has historically trended upward over time. Selling during a crash can mean missing out on the recovery and future gains.

Diversification helps reduce risk.

If your portfolio is well-diversified across different asset classes, industries, and regions, a market crash will have a less severe impact on your overall wealth.

Instead of reacting emotionally, consider sticking to your investment strategy, rebalancing your portfolio if necessary, and focusing on your long-term goals.

What Should You Do During a Market Crash?

While staying calm is important, you can also take proactive steps to protect and strengthen your portfolio during a downturn:

Avoid Panic Selling.

Selling in fear often results in locking in losses. Stay patient and focus on long-term performance.

Reassess Your Portfolio.

If you have too much exposure to risky assets, consider adjusting your asset allocation to better align with your risk tolerance.

Keep Investing Consistently.

If you're following a dollar-cost averaging strategy (investing a fixed amount regularly), continue doing so. Market crashes allow you to buy stocks at lower prices.

Strengthen Your Emergency Fund.

Having cash reserves can help you avoid selling investments at a loss if you need funds during tough times.

Seek Professional Advice.

If you're unsure how to navigate a market downturn, consider speaking with a financial advisor to review your strategy.

Market crashes are inevitable, but they are not the end of the world.

History has shown that markets recover, opportunities arise, and long-term investors are rewarded for their patience.

Instead of giving in to fear, remind yourself of the big picture.

The stock market is a powerful wealth-building tool, but only for those who stay the course and avoid making panic-driven decisions.

It’s not like the days of old when savings accounts in the U.S. paid as much as 12-15% interest (Yes, I remember that...as crazy as it is to think that once existed.)

Today, the national average interest rate for traditional savings accounts is 0.41% Annual Percentage Yield (APY).

What about a high-yield savings account? Right now, these will only provide an APY of 4.55%.

If you invest in the S&P 500 and hold for decades, historical data suggests an average return of 10% annually before inflation and 6-7% after inflation.

“But, Jack, is there really a difference between 4.55% and, say, 6.5% interest? Does it really matter?”

That depends on what you consider “mattering.”

$10,000 invested at 4.55% interest and held for 25 years would grow to $30,415.92.

$10,000 invested at 6.5% interest and held for 25 years would grow to $48,276.99.

If a difference of $17,861.07 would matter to you, then...yeah...I’d say it matters.

This demonstrates the power of compound interest…where even a small difference in interest rates leads to significantly different outcomes over time

By maintaining a long-term perspective…viewing downturns as buying opportunities… and sticking to a well-thought-out investment plan…you can emerge stronger from any market crash.

So the next time the market plunges, take a deep breath, stay calm, and remember—this too shall pass. (Because all of the historical data suggests it will. I’ll take that over guessing any day.)

Breathe…and keep breathing.

Until next time…

Best,

Jack

Jack Hopkins