When I meet people and we start talking about the stock market, I frequently hear the statement, “I am scared of the stock market. Somebody I know lost a lot of money during a market crash. I don’t like to lose money.”
I want to shift that thinking.
I want to shift it from “losing money” to “temporary decline.”
There are ways to lose money in the stock market, but if you owned a diversified exchange-traded fund or mutual fund of stocks and held for more than a decade, there is a very good likelihood you made money.
Let’s explore the market ups and downs and why it’s not “losing money” unless you sell.
As someone once told me, “It’s only the people who get off the roller coaster ride who get injured. As long as I stay on, I’ll be fine.”
How Much Can the Stock Market Fluctuate?
The stock market can fluctuate a ton!
Okay, that’s not a helpful measurement, but combine every ride at a carnival or Disney World – the ones that spin, fling you into the air, and take you on a ride in pure darkness. That’s the market.
You never know which direction it’s going. Changes are sudden and without warning. At times, it will feel like it was a mistake to ride. You may get sick, emotionally and physically. It can be horrible. Yet, it’s a great driver of wealth.
To put it in perspective, let’s look at a few of the historical crashes.

The stock market crashed a whopping 86% during the Great Depression in the late 1920s and early 1930s. It didn’t come back to it’s peak until 1954.
If you had $1,000 invested, it would have gone to about $140 at the low. You would have waited about 20 years for your money to recover. Yikes!
This was the worst crash in market history. Most crashes look tame in comparison.
Although the Black Monday crash of 1987 dropped by about 20% in a day, it only took about two years for it to recover.
The Dot-com bubble in the late 1990s and early 2000s produced quite the crash, too. The stock market dropped about 57%. If someone was heavily invested in technology stocks in the Nasdaq Index, they would have experienced a roughly 76% decline.
The Global Financial Crisis also produced a sizable drop – about 57%.
The latest decline in March of 2020 with the COVID-19 crash pales in comparison to the other declines. The stock market only went down about 34% and quickly recovered. This was the fastest recovery on record, which made it feel much different than prior crashes. It was a quick drop and a quick recovery. There was not much time to let everything fully be felt.
Prior crashes would see a decline, then a further decline, then a further decline, and so on. This was particularly true during the Global Financial Crisis where it felt like the entire system may go under.
Going back to the original question, “How Much Can the Stock Market Fluctuate?”, the answer is nobody knows for sure. Theoretically, it could go to zero if all stocks went bankrupt, though I would argue if that ever happened, money would cease to be important. In that situation, you most likely will only care about food, water, shelter, and something to protect yourself with. That’s my speculation though.
In recent history, a decline of about 50%-60% is not unreasonable, though more declines are in the 15%-30% range.
In fact, many years see stocks decline 10%-20%. That’s a feature of the stock market – not a bug.
The ups and downs are a good feature because that means there is risk and risk is why as investors, we are rewarded with good long-term returns.
Please note the phrase “long-term.” The stock market is not a short-term game. I mean, it can be, but I would not recommend it.
As noted above, the stock market can take time to recover. Depending on the stock market index, it could be anywhere from a few months to over a decade. The period from 2000 to 2009 is referred to as the “Lost Decade” because an investment in the S&P 500 during that time frame returned nothing.
During most declines, I create a mindset that the recovery window may be one to five years.
This is why if money is being invested in stocks, it should be for a 5+ year time frame and ideally 10+ years. You don’t want to be the unfortunate soul who invests their money right before the Global Financial Crisis only to watch the value drop more than 50%. Can you imagine investing $10,000 and needing the money a year later, but it’s only worth less than $5,000?
However, if that same person held onto their investment, they more than made up for the decline after six years. The only person who “lost money” is the person who sold after the decline.
Remember, it’s only the people who get off the roller coaster who get injured.
Although the stock market can fluctuate more than 20% in a year, the fluctuations are only temporary. No loss is locked until you sell. A decline of 20% is not a 20% loss, unless you sell. It is a temporary decline.
It is similar to the market being up 20%. You are not up 20% until you realize those gains, though hopefully you will hang on to see the 8th wonder of the world work – the miracle of compounding. To see it, you need to have the discipline and patience to go through many market declines. Over the course of a lifetime, there will likely be many.
How Long Can the Stock Market Stay Negative?
It’s important to not only know how much the stock market decline, but also how long it can stay negative.
Most people will care less if the market goes down 50% if it goes up 100% the following day and you are back even. It won’t be pleasant, but it’s far better than the market going down 50% and not recovering for a decade.
Below is a chart that shows you how much the market must recover to break even after a decline. For example, if the market goes down 20%, it must go up 25% before you had the same amount of money from before the decline.
Decline | Gain Needed to Recover |
-10.0% | 11.1% |
-20.0% | 25.0% |
-30.0% | 42.9% |
-40.0% | 66.7% |
-50.0% | 100.0% |
-60.0% | 150.0% |
-70.0% | 233.3% |
-80.0% | 400.0% |
-90.0% | 900.0% |
It’s nearly impossible to predict how long it will take the market to recover after a decline. It usually feels awful during the decline, and feel as though it will take forever for the market to recover.
For example, during the most recent crash during the COVID-19 pandemic, people were talking about how it could be the next big Great Depression, but it only took about four months for the market to recover to pre-crash levels.
Look at the chart below that shows how quick the recovery was compared to other events. It’s a blip in time compared to the Lost Decade.

As you look at the chart, recognize it’s easy in hindsight to say those events ended for XYZ reasons. The problem is you never know that while you are experiencing the decline. During each of those crashes, it felt like it may never end. There was always a reason it felt the market would not recover. Plus, the market tends to recover before the general economy feels like it is recovering.
The problem is if you bet against the market not recovering, you are betting on something that has never happened. Back to my original statement earlier – if the market does not exist, what will matter? Probably not anything to do with money.
In a way, it’s a collective optimism that the market will continue going up, but with many bumps along the way. Staying invested has never not rewarded investors over the long term, at least in the United States. The longer you stick with it, the better the results.
As I mentioned earlier, you don’t want to mistime those bumps or be forced to do something foolish, like selling stocks right after a decline. This is why it is important to align your investment with your expected timeframe for using the funds. If you plan on buying a home in the next year, it should not be in stocks.
Looking at the chart below, you can see how if you invested money right before a decline, there is a very low likelihood you will have your money back within a year.

The market can stay negative for long periods of time. It’s unpredictable. Don’t try to time it. I don’t know of anything better to do than put those rose-colored glasses on and believe it will be higher in the future, whether it is one year or 30 years from now.
Why Diversification is Important
If you own an individual stock, it can go bankrupt and have no value. It’s a possibility.
You can ask the investors of Washington Mutual, or WaMu. It was known as a conservative bank that went bankrupt during the Global Financial Crisis. Many shareholders lost everything.
Owning too much of one stock, often referred to as concentration risk, can build wealth quickly, but it can also destroy wealth quickly.
Companies can go bankrupt for a variety of reasons – economic shocks like the Global Financial Crisis, fraud, and mismanagement, among others. Some come with a warning, usually only in hindsight, and others without any warning.
The statistics and charts shown above are baskets of stocks, often hundreds of them. If an individual company in the basket of stocks goes bankrupt, it won’t be felt as much as if your entire portfolio was in that one stock.
If a stock goes bankrupt, there is usually very little recovered. The value is normally gone. If you had $10,000 in one stock and it went bankrupt, your $10,000 is gone. Contrast that to a basket of stocks in an exchange-traded fund or mutual fund and experiencing a decline of 50%. Although it takes a 100% gain to recover, it’s possible and always has recovered, at least in the United States.
Since different geographic regions, like the US, international, and emerging markets tend to perform differently at different times, diversification outside the United States is also prudent. Remember the Lost Decade? If an investor was only invested in US stocks between 2000 and 2009, they had 0% return for 10 years.
A globally diversified portfolio has always produced a positive return in a 10 year time frame.
Summary – Final Thoughts
Markets can be brutal. If you start investing without knowing at least a little history of market ups and downs, going through the first decline can be a rude awakening.
Markets go up and down. Whenever they are down, remind yourself it’s actually a good thing. If markets only went up, there would be no risk, and subsequently, no reward. That’s what you get with a Certificate of Deposit (CD). No risk, very little return.
Risk, and the accompanying declines, are a good thing. It’s what rewards long-term investors.
Remember, markets declining 30% in a year isn’t uncommon. It will likely happen multiple times over your lifetime. Everybody who has stayed on the roller coaster has come out ahead and much wealthier.
It’s those who sold who truly lost money.
The rest only experienced a temporary decline.
If you only remember three things, remember this:
- Global diversification is important to minimize the risk of permanent loss.
- Market declines of more than 20% are common. Embrace them and know it will feel uncomfortable.
- Recovery times are unpredictable. Don’t bother trying to time it. You don’t need to for good long-term results.
Happy investing!