A history of market swings
From the 1929 crash to the 2008 credit crisis: markets have always bounced back. Learn why history says the long-term trend still points up.
Now that you understand what prices are and why they fluctuate, let's take a look at some history. Zoom out far enough, and you'll see there have always been steep dips and strong rallies — and that despite everything, the line has kept climbing over time.
Panic on the stock market!
Panic gripped the New York stock exchange on Thursday, October 24, 1929, when stock prices suddenly collapsed. Investors scrambled to offload their stocks, which only pushed prices down further. Those who sold often suffered heavy losses.
This day went down in history as "Black Thursday." Many historians see it as the starting point of a long, worldwide economic depression — one that eventually helped set the stage for the Second World War.
Recession and depression
A "recession" is when economic growth falls below average for more than two quarters. A recession that lasts a very long time is called a "depression."
There's always a chance of a crash
As a new investor, this might be your biggest fear: that stock prices suddenly crash and you lose most or all of what you’ve invested.
Unfortunately, we can't fully reassure you here: the risk of loss is part of investing — and yes, stock prices can fall. In fact, it's almost certain they will again at some point, just as it's certain to rain again eventually.
Stock prices are resilient
But it's also important to keep the bigger picture in view. So far, prices have recovered after every crisis — even after the 1929 crash, the Great Depression that followed, and the Second World War. What’s more, stock prices have risen steadily over the long term, as you can see from this chart of the US S&P 500 index, which is regarded as a barometer of the stock markets.
Important: this chart uses a logarithmic scale. In this case, it means the size of price rises and falls can be compared more accurately across history. The market crisis of the 1930s, for example, was far worse in terms of losses than the 2008 credit crisis.
This matters if you’re an investor. Despite significant dips, stock prices have risen over the long term. And the longer you stay invested, the greater your chances of benefiting from that growth.
You only lose when you sell
One more thing worth remembering: you only realize a loss when you sell your investments at a lower price than you paid. As long as you hold onto them, your loss is only "on paper" — not real. So if you don't need the money yet, you can choose to wait out a downturn and see if prices recover. There's no guarantee they will — the choice to wait or sell is entirely yours.
Key takeaways
- Historically, global stock prices have recovered from every crisis
- Over the long term, stock prices have always risen — so far
- Past performance is no guarantee of future results
- You only realize a loss when you sell your investments; until then, it's only a paper loss
- If it fits your circumstances, you can wait out a dip and see if prices recover