How to Survive a Market Correction…Correction! I Mean How to Survive a Market Crash

The media wants you to believe that if this guy is worried, you should be too

In this post, you’ll read three easy steps on how to survive a market crash, correction, meltdown, tailspin and other market calamities.

Are you feeling down? Nervous? Irritable? Constipated? Anxious?

If so, you should be worried. These are sympathy pains from the financial market suffering the worst week in two years.

Now, I’m not a doctor but I’ve been through market corrections and crashes.

Do not worry readers! FIIntrovert has the prescription to get you through these terrible times.

Just follow the simple steps below to survive a market crash:

Step 1: Go on a Diet

Switch to a low information diet. Now. This is critical.

Stop reading, watching, and listening to the cable TV pundits. Their entire job is to get you to worry and fear. In order to relieve you of your misery, the proclaim they have the answers if you just wait for the next damn guest after this commercial for prime, undeveloped real estate in a new lake front subdivision.

Cut the cord! There is no need to allow these professional manipulators to hoist unproductive anxiety upon you.

Change your diet. Stop consuming calorically empty financial news.

Looks, I am not a monster and I don’t expect you to go cold turkey.

If you really must read about financial crashes, there are plenty of books to give you some historical perspective. And let me even wean you off of your terrible diet with the second step to dealing with market crashes: Remember Your Relatives

Step 2: Remember Your Relatives

“But FIIntrovert,” you say, “The Dow lost 600 points today! That’s a lotta points!”

Is it?

The second step to dealing with a market correction is to remember your relatives.

No, I am not suggesting you think sympathetically about your poor Aunt Alice who lost half her retirement selling at the bottom of the subprime mortgage crisis.

If you look at the headlines they all scream about the point drop. But what about the percentage drop? In other words, the relative drop in comparison with the price of the Dow?

This CNBC article wants to scare us into clicking on it by saying how rare a 600 point drop is. It even includes a handy chart of other 600 plus drops.

Let’s have a looksee, shall we?

April 14, 2000 10305.78 -617.77 -5.66
September 17, 2001 8920.7 -684.81 -7.13
September 29, 2008 10365.45 -777.68 -6.98
October 09, 2008 8579.19 -678.91 -7.33
October 15, 2008 8577.91 -733.08 -7.87
December 01, 2008 8149.09 -679.95 -7.7
August 08, 2011 10809.85 -634.76 -5.55
June 24, 2016 17400.75 -610.32 -3.39

Bleak Friday

April 14, 2000, coined “Bleak Friday” by the financial media, is the day the Dow “plummeted” 617 points. It was the “steepest one-session point loss in history.”

What was the matter? Inflation fears. (You might see the same fears coming around again.)

The Dow closed at 10,305 on Bleak Friday.

Today, the Dow closed at 25,520 – a 148% gain from that dreary day.

9/11

On September 17, 2001, the Dow dropped 684 points following the September 11, 2001 terrorist attacks. The Dow closed at 9,605 on September 10. The next day, terrorists attacked the World Trade Center and Pentagon to cripple our democratic republic fueled by capitalism.

On September 17, 2001 the markets reopened and the Dow closed at 8,920.

Today, the Dow closed at 25,520 – a 186% gain. The terrorists failed.

Bank Bailout Rejected

On September 29, 2008 the House of Representatives in the United States Congress rejected a bill to bail out banks that carried massive amounts of subprime mortgage securities and derivatives.

The Dow closed at 10,336 that day. Congress eventually acted on a plan to strengthen major financial institutions’ balance sheets.

Today the Dow closed at 25,520 – a 147% gain since the day the House voted not to do something it eventually did.

Fear Hits All Time High One Year After Dow Hits All Time High

On October 9, 2008, the so-called “fear index,” the VIX, hit an all time high. Coincidentally, it was the one-year anniversary of the Dow hitting an all time high as well.

In the end, while the Dow closed at 8,570 that day, there was nothing to fear.

Today, the Dow closed at 25,520 – a 198% gain. Fear even proved to be nothing to fear.

Recession!

On October 15, 2008, Janet Yellen, who at the time was President of the San Francisco Federal Reserve Bank said, the economy “appears to be in a recession.” (Retail sales also hit a three year low.)

The Dow closed that day at 8,557.

Today, Yellen, now Chairwoman of the Federal Reserve, curtailed the growth of Wells Fargo following its unethical business tactics of opening fraudulent accounts in customers’ names.

Even with all the talking heads yellin’ about Yellen (blah blah…I know it’s a Dad joke but this is my blog) the Dow closed today at 25,520 – a 198% gain from October 15, 2008.

Official Recession!

On December 1, 2008, the National Bureau of Economic Research (NBER) confirmed the apparitions that appeared before Yellen in September. Recession was no longer the hallucinations of some hippie Fed governor in San Francisco.

The Dow closed the day at 8,149.

Today, the Dow closed at 25,520 – a 213% gain since the official recession.

Black Monday

The financial press likes scary, if not original, names for market drops. They deemed August 8, 2011, Black Monday after the United States lost its AAA credit rating. This happened during the “debt crisis” that was supposed to take down the global financial system after several European countries began to default on their debt.

I had to pull this quote out of the CNN Market report for that day:

“’Investors are having one reaction to the downgrade: sell first and ask questions later,’ said Paul Zemsky, head of asset allocation with ING Investment Management.”

Smart.

Another fun quote from the article, “Since the rating cut is unprecedented, nobody can be certain what the ultimate impact will be.”

Well, we certainly know selling wasn’t the best strategy. The U.S. got its AAA credit rating back and today the Dow closed at 25,520 – up 136% from Black Monday.

Brexit by God!

On June 24, 2016 the world learned that Great Britain’s populace voted to leave the European Union. The markets went into a “tailspin.” The Dow closed at 17,400.

What in the world would we do now that Britain had left the EU? London, a major financial center, was in Britain. Surely global commerce would halt.

Nah. No factor. Today the Dow closed at 25,520 – up 47% since the Brexit catastrophe.

Notice a pattern? Every time there was a rumor, a comment, a global financial crisis, an attack, people panic. Every time, the markets recovers.

Don’t panic!

But how?

Let’s look at the third step.

Step Three: Inoculate Yourself

It’s flu season. Have you had your shot?

Consider reading this post part of your inoculation against market corrections, crashes, meltdowns, tailspins, and any other market ailments you may have sympathy pains with.

Having perspective (if you lack experience) is a good way to inoculate oneself. I’ve tried to give you perspective above.

Here is another fun way to inoculate yourself so that you can deal with a market crash: Imagine the worst-case scenario of a crash and incrementally put yourself in that situation. Here are some examples of what some people might do to inoculate themselves (I am not telling anyone reading this to do these):

  • Try fasting for 12 hours, a day, three days. Knowing that you can go without a meal for a day or a few hours provides confidence. The world does not end if you have to skip some meals and, literally, tighten your belt, which is unlikely.
  • Turn the heat down to 65, 60, 55, 50. Sleep in a tent in the backyard. Or better yet, go camping on an overnight or longer to see what it would be like to live in nature. Not so terrible huh? If you had to downsize your house you could surely survive.
  • Do a no shop day, week, or month. The challenge is to consciously not buy anything. By not buying anything for a given period, it proves that we really don’t need much, if anything, to be happy. And if you can cut back your spending temporarily, you can likely do it should it become necessary as a result of a crash.
  • Ride your bike or walk to places you would normally drive. If it came to that, you’ll know you could do it if you had to. Plus, you’ll be getting richer with exercise.

These fun challenges should provide confidence that you really can survive much more than you think.

Oh and one more.

Keep going to work!

Worst-case scenario you have to go to work like you are already doing. I think you’ll be fine.

A market correction or crash is not that bad. You will survive. And so will the financial system. (If it doesn’t none of it matters anyway – so don’t worry!)

Summary: 3 Steps to Surviving a Market Crash

  • Change your diet. Stop consuming information that is made to scare you. If you read the articles linked in this post, you will notice they all have the same language and same alarmist writing. I was an adult for all those crashes. I’m still here. It was fine.
  • Relatives: When the Dow drops 1,000 points people are going to go crazy. But today’s 1,000 point drop is not like that of ten years ago. The Dow has soared and the relative percentage is not what it was when the Dow was lower. So don’t be alarmed.
  • Inoculation: Try little challenges that represent your worst fears of a financial crisis. Riding a bike? Camping outside? Being thin? Can’t spend frivolously? Geez. These do sound awful.

The anticipation of what might or might not come is worse than the actual event. I can say that with 100% certainty going through both 2000 and 2007 to 2010.

It’s all good. I’m fine. You’re fine. We’re all going to be fine.

Keep earning, saving, and investing your way to financial independence.

12 comments Add yours
  1. Awesome article! I agree 100% with all you said there. It just feels a little askew to see your net worth drop when it has been going up so much lately but I’m okay with it because until you sell or realize the gains/losses, you haven’t lost anything. This is why I love dividend growth investing. I still have the same amount of shares and I will be paid with dividends while the market recovers. I will definitely be shielding myself from all the FUD’s. I will be keeping the course and buying more during dips like this week. I will be greedy when others are fearful. Thanks for recounting the times the market recovered from all those big drops. Yes, we’ll be fine.

  2. Nice sentiment! Keep calm, everything will be fine.

    I, for one, welcome any market drops. It feels nice to buy index funds “on sale” 🙂

    1. Yes it is on sale for sure. And this is the best situation because the economy and employment are doing so well. Everyone should have money to buy the sale, unlike when the economy was weak.

  3. I understand #3, especially sitting here in a house at 60 degrees. It’s not super-comfy, but it’s something that I can get through, not because I have to, only because I want to…If you don’t allow yourself to be restricted in some form or fashion – when the time comes it’s NOT going to be fun.

  4. Loved this article! I was talking to an acquaintance just the other day- she said that she held on to her investment because she couldn’t figure out what to do. And kept postponing making the decision.
    That is what works out- just do nothing!

    1. Thank you Busy Mom! There was an article going around (I think it was discredited however) that Fidelity did an analysis of all their accounts and the ones that did the best were the accounts of either people who forgot the account existed or of those that were dead. There are similar credible statistics to say that the passive individual investor will out perform the active individual investor.

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