Stock Market Crash In 2018? | History of Stock Market Crashes


Well the stock market’s taken a bit of a turn
for the worse this past week, isn’t it? Hey everyone, Daniel here and welcome to Next
Level Life a channel where you can learn about Investing, debt, retirement, and many other
general financial education videos because the school’s aren’t going to do it for us. So if any of those topics sound interesting
to you or if you want to learn how to better handle your money and have more financial
freedom be sure to hit that subscribe button and the bell next to my name to be notified
every time I upload a video. Well I didn’t initially plan to do this video
this week but seeing as the market kind of took a bit of a tumble at the end of the week
losing about 5% of its value according to the S&P 500 in the last couple of days I figured
it’s probably a good time to upload this video. So it is March 25th, 2018 as I’m recording
the audio for this video and from March 21st to March 23rd the market dropped from about
$2,720 down to about $2,590 a loss of about 5% in the span of two days. And with things like possible trade wars being
all over the news lately one has to wonder if the market is about to collapse? Well as I’ve mentioned many, many, many
times on this channel and as I will mention many more times as we go along I have no idea
what the market’s going to do next. Nobody truly does. But if the market does crash I thought it’d
be a good idea to look now, before it happens, and see during a market crash how much of
a difference can you make in your net worth by continuing to invest? So in this video, I’m going to give you a
bit of a crash course in the stock market… Crashes and go through the most notable Market
crashes since the 1950s using data from the S&P 500 as a barometer and talk about how
much the market dropped and how long it took the market to recover. Then at the end of the video I’m going to
compare and contrast the differences in net worths of someone who pulled out of the market
during large crashes, someone who decided to stop investing during crashes but did not
sell their Investments that they already had, someone who continued to invest like normal
during large crashes, and finally someone who starts to invest even more when the market
is going down. Let’s get started. Alright one last thing I want to mention before
I actually get into the crashes themselves is that I understand that crashes can be very
bad in more ways than just seeing your investment values going down. The unfortunate fact is that a lot of people
lose their jobs when the market crashes, so all of the stuff that I go through in this
video today is only going to be valid if you can keep an income coming into the household
during the crash. So first I’ll start with the smaller crashes
which in my opinion should probably really be called Corrections. In December of 1952, the S&P 500 peaked at
$26.57 over the next several months it dropped to a low of $23.32 in August of 1953. That was a drop of a little over 12%. A few months later it would recover and break
its original peak of $26.57 closing at $26.94 in March of 1954. Meaning that it took 1 year and 3 months for
the market to go from the First peak all the way to the point where the market fully recovered
and set a new high. In July of 1956, the S&P 500 peaked at $49.39
over the next several months it dropped to a low of $39.99 in December of 1957. That was a drop of 19%. A few months later it would recover and break
its original peak of $49.39 closing at $50.06 in September of 1958. Meaning that it took 2 years and 2 months
for the market to go from the First peak all the way to the point where the market fully
recovered and set a new high. In July of 1959, the S&P 500 peaked at $60.51
over the next several months it dropped to a low of $53.39 in October of 1960. That was a drop of a little under 12%. A few months later it would recover and break
its original peak of $60.51 closing at $61.78 in January of 1961. Meaning that it took 1 year and 6 months for
the market to go from the First peak all the way to the point where the market fully recovered
and set a new high. In December of 1961, the S&P 500 peaked at
$71.55 over the next several months it dropped to a low of $54.75 in June of 1962. That was a drop of a little over 23%. A few months later it would recover and break
its original peak of $71.55 closing at $72.50 in August of 1963. Meaning that it took 1 year and 8 months for
the market to go from the First peak all the way to the point where the market fully recovered
and set a new high. In January of 1966, the S&P 500 peaked at
$92.88 over the next several months it dropped to a low of $76.56 in September of 1966. That was a drop of a little over 17%. A few months later it would recover and break
its original peak of $92.88 closing at $94.01 in April of 1967. Meaning that it took 1 year and 3 months for
the market to go from the First peak all the way to the point where the market fully recovered
and set a new high. In November of 1968, the S&P 500 peaked at
$108.37 over the next several months it dropped to a low of $72.72 in June of 1970. That was a drop of a little under 33%. A few months later it would recover and break
its original peak of $108.37 closing at $109.53 in May of 1972. Meaning that it took 3 years and 6 months
for the market to go from the First peak all the way to the point where the market fully
recovered and set a new high. In December of 1972, the S&P 500 peaked at
$118.05 over the next several months it dropped to a low of $63.54 in September of 1974. That was a drop of a little over 46%. A few months later it would recover and break
its original peak of $118.05 closing at $121.67 in July 1980. Meaning that it took 7 years and 7 months
for the market to go from the First peak all the way to the point where the market fully
recovered and set a new high. In March of 1981, the S&P 500 peaked at $136.00
over the next several months it dropped to a low of $107.09 in July of 1982. That was a drop of a little over 21%. A few months later it would recover and break
its original peak of $136.00 closing at $138.53 in November of 1982. Meaning that it took 1 year and 8 months for
the market to go from the First peak all the way to the point where the market fully recovered
and set a new high. In August of 1987, the S&P 500 peaked at $329.80
over the next several months it dropped to a low of $230.30 in November of 1987. That was a drop of a little over 30%. A few months later it would recover and break
its original peak of $329.80 closing at $346.08 in July of 1989. Meaning that it took 1 year and 11 months
for the market to go from the First peak all the way to the point where the market fully
recovered and set a new high. In May of 1990, the S&P 500 peaked at $361.23
over the next several months it dropped to a low of $304.00 in October of 1990. That was a drop of a little under 16%. A few months later it would recover and break
its original peak of $361.23 closing at $367.07 in February of 1991. Meaning that it took 8 months for the market
to go from the First peak all the way to the point where the market fully recovered and
set a new high. In August of 2000, the S&P 500 peaked at $1517.68
over the next several months it dropped to a low of $815.28 in September of 2002. That was a drop of a little over 46%. A few months later it would recover and break
its original peak of $1517.68 closing at $1526.75 in September of 2007. Meaning that it took 7 years and 1 months
for the market to go from the First peak all the way to the point where the market fully
recovered and set a new high. In October of 2007, the S&P 500 peaked at
$1549.38 over the next several months it dropped to a low of $735.09 in February of 2009. That was a drop of a little over 52%. A few months later it would recover and break
its original peak of $1549.38 closing at $1569.19 in March of 2013. Meaning that it took 5 years and 5 months
for the market to go from the First peak all the way to the point where the market fully
recovered and set a new high. In May of 2015, the S&P 500 peaked at $2107.39
over the next several months it dropped to a low of $1920.03 in September of 2015. That was a drop of a little under 9%. A few months later it would recover and break
its original peak of $2107.39 closing at $2173.60 in July of 2016. Meaning that it took 1 year and 2 months for
the market to go from the First peak all the way to the point where the market fully recovered
and set a new high. All right with that out of the way let’s get
to the comparison. Now obviously most people aren’t going to
work for 70 years, the human body just could not sustain it, so I won’t be using the data
from 1950 to today instead I’m going to be using the data from January of 1978 to the
end of December 2017 so that 40 year period. In all four cases, I’m going to assume that
each person invests $100 a month. Let’s see how their net worths change depending
on how they handle Market crashes. I’ll start with Joe. Joe is a little bit more nervous during Market
crashes and tends to panic a little bit more than he would like to admit and as a result,
he sells his Investments when the market is bottoming out. Now is that a little bit unrealistic that
he would sell off his investments at the low point of the market every time? Yeah, I admit it is a little bit unrealistic,
but this is just for an example to illustrate the differences in your net worth depending
on how you handle Market crashes. So Joe starts off in 1978 confidently investing
$100 a month. The market starts to go down in March of 1981
but he continues investing, figuring that it will come back eventually. However, eventually, it gets to be so bad
that he can’t take it anymore. He loses his faith in the market in July of
1982 and completely sells his way out of the market. He regains his confidence in the market in
November of 1982 when the market sets a new high and that’s when he buys back in. Now, remember between March of 1981 and July
of 1982 the market dropped about 21%. By the time that it hit its low point Joe’s
net worth was $5,250 so that’s what he got when he sold his stock and that’s also, for
the sake of convenience, what he puts in, in November of 1982. This pattern continues with Joe continuing
to invest as the market begins to go down but then panicking when it hits its low, selling
off his investments before getting back in after the market hits its new high. At which point he reinvests everything that
he made from selling his stocks when the market was low. This means that over the course of 40 years
he put over $178,000 into the market. Now that number does include the amount they
put in after selling his stocks so it is a little bit misleading. If we were to just look at the amount of money
he put in with his hundred dollars a month investments it would come out to be $32,700
over the course of 40 years. His total net worth at the end of 40 years
is $46,014.16. Now let’s take a look at Betty. Betty is a little bit more confident in the
market than Joe but not quite enough to continue investing as it’s going down. However, unlike Joe, she does not sell out
of the market at any point. She will invest $100 a month just like Joe
until the market starts dropping. Once it starts dropping she will stay invested
but won’t continue to put more money into the market and similar to Joe she will begin
investing again once the market sets a new high. Over the same 40-year period as Joe, she will
invest $26,800 of her own money into the market and wind up with a net worth of $258,449.67. That is over five times as much as what Joe
ended up with! So clearly at least over the last 40 years,
it is much much better to stay invested in the market even if you don’t continue contributing
during Market downturns than it is to sell off when the market is dropping. And I’m sure that we all already knew that
but it is nice to have numbers put to it. Next, let’s take a look at Charlie. Charlie is fairly confident in the Market’s
long-term potential and he continues to invest $100 a month every month
no matter what the market is doing. This means that over the course of 40 years
he will have put $48,000 of his own money into the market. And since he never stopped investing or sold
his stocks he would have a network after 40 years of $370,424.37. That is over $110,000 more than Betty despite
the fact that he only put in about $21,000 more of his own money over the same period
of time. Lastly, let’s look at Jane. Jane has an unwavering faith in the stock
market’s long-term potential and not only does she keep investing at least $100 a month
no matter what the market is doing but when the market starts dropping she doubles down
and invests an extra $50 a month during the drop and continues to invest that extra $50
a month all the way until the market hits a new high. At that point, she goes back to investing
just her regular $100 a month. In doing this Jane will end up with a net
worth of $426,411.71. That is an extra $56,000 more than Charlie,
it’s nearly $170,000 more than Betty and it is almost 10 times the amount that Joe ended
up with over the same period of time. Now Jane did invest the most out of any of
the four, putting $58,600 of her own money into the market over the course of 40 years,
but with that extra $10,600 that she invested in comparison to Charlie she ended up with
an extra $56,000 in her net worth. Meaning that those extra $10,600 earned her
roughly $5.28 per $1 invested. In
case you are curious, I get that number by taking Jane’s net worth – Charlie’s net
worth divided by the difference between Jane’s $58,600 of Investments minus Charlie’s $48,000
of Investments. The ratio is about the same when you compare
Jane’s Investments to Betty’s Investments and running the same calculation Jane earns
about $14.69 per extra $1 invested when compared to Joe. So you can see how big of a difference changing
the way you look at stock market crashes and corrections can make in your net worth over
time. It can be a huge difference. However, as I said earlier in the video crashes
and market corrections are an opportunity as long as you can keep income coming into
the house. However, I do want to say that just because
you can noticeably increase your net worth by shoveling as much money as you can into
the market when it’s going down that doesn’t always mean that you should. For example, if you’re up to your eyeballs
in debt you may want to consider putting the money, especially during a market crash, towards
paying off your debt and lowering your month-to-month living expenses. Because who knows you may end up having to
look for a new job at some point during the crash. Even if you’re doing really good work at your
company, sometimes they have to downsize as the market Falls, so you may be laid off at
least temporarily and that should always be taken into consideration. As always consult with a financial professional
when making these decisions. But that’ll do it for me today once again
if you enjoyed this video be sure to subscribe and hit that Bell next to my name so that
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with them and let’s really get this information out there and start our own Financial revolution.

32 Replies to “Stock Market Crash In 2018? | History of Stock Market Crashes”

  1. Hopefully if we have a crash it won't be as bad as the last two, in 2008 I was out of work for 6 months. I enjoyed your summary of all the different crashes, it really puts them into perspective.

  2. Would it be a good idea to convert a Traditional IRA to a Roth IRA during a crash since that would mean you are converting a lower number of dollars thus paying lower taxes on total income for the year of the conversion? It makes sense to me but I haven't seen it talked about anywhere.

  3. I guess this math works for the NewYork Stock Exchange. However if you look at the Amsterdam Stock Exchange (AEX) the math becomes a bit different. The ultimate high occurred before the dot.com crash in 2000, and was at 701 points. Since then it has never reached this height again and now it is at 539. We are talking more then 18 years! This makes the math really different in terms of the assumed gains/profits from investments. Off course your overall principles will still be valid, but what if in a lifetime the AEX will never reach anymore the ultimate high of 701 points? a bit of a different story!

  4. Very cool video! I only have one question: why Betty would have invested less than Joe if both of them start investing again @100 per month when market sets new high?

  5. Love this explanation. Why didn’t I know this when I was in my 20s??? Probably spent too much money on hair products.

  6. Hey, really interesting video. Did you by any chance examine what would have happened if one of our make believe friends would have put their $100 in when the market was going down, and then stopped when it reached a new peak? In other words, only put their money in DURING a recession? Would that be inefficient as you simply wouldn't be putting enough money in due to the market rising more than it falls?

    I'd appreciate any feedback you could give me regards that idea.

  7. Could you do this same video with the same investments if you started in the mid-90's? To me, the people (Dave Ramsey claims higher percentages than I see and I invest way more than $100/mo) that say you should keep investing and long term it pays off ignore how hard it has gone down in the plunges in the last 20 years. it has left me wondering about the stats for the more recent past. thx

  8. YOU RIDE IT OUT!!! Depending on your age, you can even be more aggressive in a down market – change some of your allocations around.

  9. So in the last 18 years a little over 2/3's (12.5 years) have been a recession/recovery, representing 2 of the 3 largest drops in his chart at 46 and 52% respectively. And now everyone is talking about another one, just that some people say it will be student loans, others another housing bubble, and I've even heard one say car loans (though I don't know anything about that). This doesn't breed confidence going in. The removal of many regulations has created a roller-coaster stock exchange vs a steady climb. IDK, that's just what it seems like to me. Maybe that's just my ignorance showing.

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  11. Excellent analysis and breakdown. I must admit. I watch this video every so often to remind myself to stay strong when the market dips!

  12. I find this video very comforting. Such a good reminder that even though times get rough, we always bounce back better than ever

  13. If Betty invested $200 instead of $100 while maintaining her same strategy, her total investment would be $53,400 (less than Jane's) and she would have much more than Jane at the end of the 40 years.

  14. Even though Jane got the greatest net worth, Betty's strategy is more efficient. Considering each individual's investment and their net worth at the end, Betty got 8,64% of return on her money, compared to Jane's 6,27%.
    $ invested Net worth Net worth – invested % Return
    joe $ 32.700,00 $ 46.014,16 $ 13.314,16 0,407%

    betty $ 26.800,00 $ 258.449,67 $ 231.649,67 8,644%

    charlie $ 48.000,00 $ 370.424,37 $ 322.424,37 6,717%

    jane $ 58.600,00 $ 426.411,71 $ 367.811,71 6,277%

  15. Looking at the numbers, person number two has got the best rate of return of all of them. I she had invested $58600 as the last example, she would have ended up with a nearly $570000. Somehting tha I am missing?

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