Is the stock market guaranteed to crash at some point?

[webguy]

I hear people say things like "the markets will crash at some point", "markets are cyclical", or "you'll experience multiple crashes during your lifetime".

I know that no one knows the future, but I'm curious; is a crash at some point the most likely scenario, or is it quite possible that the market will never crash again?  Could the market go up slowly, forever? Or are there some economic factors which mean that a crash every so often is pretty much guaranteed?

[NoStacheOhio]

It's hard to say with any level of certainty. Several years of a flat market could happen in place of a big drop, especially when government and the fed get involved.

Overall, you'd be crazy not to expect ups and downs though.

[WerKater]

In all likelihood there will continue to be all of the following:
- big crashes
- small corrections
- phases of stagnation
- phases of medium growth
- phases of fast growth
- unsustainable bubbles.

Furthermore, just like in the past, people will typically continue to suck at predicting when any of these will happen.

[Blueskies123]

History is the best predictor of the future (but not 100%).  What has history tough you?

[thd7t]

People will use the term "crash", willy-nilly. I heard it said in August of last year and February of this year. These were minor corrections. Some people will panic over these. Some will stay out of the market in anticipation of them. The market appears cyclical, but it trends up.

[TheAnonOne]

The market is basically guaranteed to crash at certain points because investments occasionally create bubbles when everyone gets frantic about XYZ.


Crashes also happen because of....

War-
Banking issues(08)-
Sudden Price Drops(Oil)-
ect...

[k9]

The generally accepted definition of a krach is a drawdown of more than 20% So, if at anytime you're 20% or more lower than the all-time high, that's a krach. It can take as long as several years or as short as a few milliseconds, but these are all krachs.

Such an event not to happen anymore would require very efficient markets (because any overoptimism will be corrected sooner or later) and a steady growth of the economy forever (because a slowing economy or a bad event such as a war or a natural catastrophe would lead at some moment to a decline of 20% or more of the economy). Quite unlikely, IMO.

[Jack]

A crash at some point in the future is very, very likely, but not "guaranteed." Similarly, a positive long-term growth trend -- despite crashes -- is also very, very likely, but not "guaranteed." This is mainly because nothing regarding the stock market is "guaranteed," almost by definition.

[LLCoolDave]

Yes, there will be crashes. There are ways they can be less painful. Add bonds to your portfolio, keep a couple years of cash in a CD/bond ladder. That way you don't need to sell when the market is crashing. You might even add more equities in order to rebalance.

[Turkey Leg]

LivingAFI wrote a drawdown series (here is the link to the "examples" installment: https://livingafi.com/2014/05/28/drawdown-part-4-examples/) in which he compared two plans and walked them through the horrific 1970's (stagnant growth plus inflation).

Plan A is to hold all assets (680K)  in funds, 75/25 stock/bond allocation, taking out one year of cash each January.  These results mirror the cFIREsim output exactly.  In this example we take an inflation-adjusted 18K annually without variation.

Plan B is our cash buffer strategy.  In this case we’re holding 75K of cash and we start our retirement cycle with only 605K in assets.  Also, as part of our plan, we will cut back on spending, from 18K to 15K, during years where the market has dropped.  These cuts are easily achievable for us and results in only a minor dip in quality of life.   Note that this is the same basic strategy that we implemented during our Great Depression example above, and mirrors the strategy from part 3 of this series.

Plan B has a reduction in spending, in addition to the CD ladder, and while it had a tiny bit more money in the end than Plan A, Plan A didn't have a reduction in spending.

Why, oh, why do we illogically hold cash/CDs and/or too many bonds? (Got some myself as I near FIRE. Shame on me!)

[GreatLaker]

Stock markets have over 100 years of booms, busts and crashes. It's likely to continue. Even if there is never another bear market or crash, we don't know that, so the rational strategy is to build a portfolio that can withstand a crash with a level of volatility that you can stand, and educate yourself on typical market movements and prepare yourself for if/when it happens.
                   
It is helpful to look at history to understand how the stock market recovers from corrections and bear markets:

May 1946 to May 1947. Stocks plunge 28.4%.
June 1948 to June 1949. Stocks decline 20.6%.
June 1950 to July 1950. Stocks fall 14%.
July 1957 to October 1957. Stocks fall 20.7%.
January 1962 to June 1962. Stocks plunge 26.4%
February 1966 to October 1966. Stocks fall 22.2%.
February 1966 to October 1966. Stocks fall 22.2%.
November 1968 to May 1970. Stocks plunge 36.1%.
April 1973 to October 1974. Stocks plunge 48%
September 1976 to March 1978. Stocks fall 19.4%.
February 1980 to March 1980. Stocks fall 17.1%.
November 1980 to August 1982. Stocks fall 27.1%.
August 1987 to December 1987. Stocks fall 33.5%.
July 1990 to October 1990. Stocks fall 19.9%.
July 1998 to August 1998. Stocks fall 19.3%.
March 2000 to October 2002. Stocks plummet 49.1%.
November 2002 to March 2003. Stocks fall 14.7%
October 2007 to March 2009. Stocks plummet 56.8%.
April 2011 to October 2011. Stocks fall 19.4%.
June 2015 to August 2015. Stocks fall 11.9%

Stocks gained +1,100-fold during this 70-year period.
Source: http://www.fool.com/investing/general/2015/09/09/keep-in-mind-stocks-rose-1100-fold-during-this-per.aspx

Lesson learned: Stay-the-Course

[Livewell]

http://jlcollinsnh.com/2012/04/15/stocks-part-1-theres-a-major-market-crash-coming-and-dr-lo-cant-save-you/

Yes it's coming.  Just don't try to time them too often.  Marc Faber, Peter Schiff, Jim Rodgers and the CNBC gang have correctly called 27 of the last 3 crashes. 

[human]

Stock markets have over 100 years of booms, busts and crashes. It's likely to continue. Even if there is never another bear market or crash, we don't know that, so the rational strategy is to build a portfolio that can withstand a crash with a level of volatility that you can stand, and educate yourself on typical market movements and prepare yourself for if/when it happens.
                   
It is helpful to look at history to understand how the stock market recovers from corrections and bear markets:

May 1946 to May 1947. Stocks plunge 28.4%.
June 1948 to June 1949. Stocks decline 20.6%.
June 1950 to July 1950. Stocks fall 14%.
July 1957 to October 1957. Stocks fall 20.7%.
January 1962 to June 1962. Stocks plunge 26.4%
February 1966 to October 1966. Stocks fall 22.2%.
February 1966 to October 1966. Stocks fall 22.2%.
November 1968 to May 1970. Stocks plunge 36.1%.
April 1973 to October 1974. Stocks plunge 48%
September 1976 to March 1978. Stocks fall 19.4%.
February 1980 to March 1980. Stocks fall 17.1%.
November 1980 to August 1982. Stocks fall 27.1%.
August 1987 to December 1987. Stocks fall 33.5%.
July 1990 to October 1990. Stocks fall 19.9%.
July 1998 to August 1998. Stocks fall 19.3%.
March 2000 to October 2002. Stocks plummet 49.1%.
November 2002 to March 2003. Stocks fall 14.7%
October 2007 to March 2009. Stocks plummet 56.8%.
April 2011 to October 2011. Stocks fall 19.4%.
June 2015 to August 2015. Stocks fall 11.9%

Stocks gained +1,100-fold during this 70-year period.
Source: http://www.fool.com/investing/general/2015/09/09/keep-in-mind-stocks-rose-1100-fold-during-this-per.aspx

Lesson learned: Stay-the-Course

What's the cut off for "fall", "decline" and "plunge"?? lol

[GreatLaker]

What's the cut off for "fall", "decline" and "plunge"?? lol

Ha Ha! I can deal with those. It's the "plummets" that get to me!

[tommie]

Lesson learned: Stay-the-Course

What if one wanted to withdraw funds? If one always stay the course that simply isn't a possibility since one then have to time the market, something few is successful with.

[GreatLaker]

Lesson learned: Stay-the-Course

What if one wanted to withdraw funds? If one always stay the course that simply isn't a possibility since one then have to time the market, something few is successful with.

Stay the course does not mean you can never withdraw money. Investors should have investment strategies and tactics to follow, preferably defined in an Investment Policy Statement (IPS) http://www.finiki.org/wiki/Investment_policy_statement. If  you need to withdraw for an emergency, that should come from your emergency fund, not your investment portfolio. If you plan to withdraw for income during retirement the method for doing that should be defined in your IPS. Neither of those involve market timing.

If you want to withdraw money or shift investments to cash because the market has dropped, or it is too volatile, or you think it is overvalued, that is market timing, and as you say, "few is [sic] successful with"

[tommie]

Lesson learned: Stay-the-Course

What if one wanted to withdraw funds? If one always stay the course that simply isn't a possibility since one then have to time the market, something few is successful with.

Stay the course does not mean you can never withdraw money. Investors should have investment strategies and tactics to follow, preferably defined in an Investment Policy Statement (IPS) http://www.finiki.org/wiki/Investment_policy_statement. If  you need to withdraw for an emergency, that should come from your emergency fund, not your investment portfolio. If you plan to withdraw for income during retirement the method for doing that should be defined in your IPS. Neither of those involve market timing.

If you want to withdraw money or shift investments to cash because the market has dropped, or it is too volatile, or you think it is overvalued, that is market timing, and as you say, "few is [sic] successful with"

It means exactly that.

Neither of the withdrawals involves timing? What magic component un-times the market as soon as one make a withdrawal? Sign me up! :-)

I was just merely making a point. The phrase "stay the course" and similar stuff gets thrown around quite a lot even though there's lots of data suggesting that for long durations of time that can be a terrible idea. Hence the idea to just "stay the course" is not something i believe in at all and i think it's genereally a pretty poor advice to give someone. A better advice would be to tell the person to begin reading and then build a proper strategy for entry and exit and not blindly rely on never ending prosperity on the stock market. Even a simple SMA200 would make the ride quite a lot smoother.

On topic: Yes, it will crash again and again. That's why one need a strategy that one can follow for long durations of time without it being either too hard during turmoil.

[Financial.Velociraptor]

Since 1950, stocks have experienced 147 pullbacks of 5% or more, 40 corrections of 10% or more, 19 drops of 15% or more, 11 bear markets of 20% or more, and just five crashes of more than 30%.

That comes out to a:
5% drop every 5 months
10% drop every 20 months
15% drop every 41 months
20% drop every 71 months
30% drop every 156 months

It is normal to experience volatility...

[steveo]

Quick answer - yes the stock market will crash at some point. It will though also go on a massive boom at some point. It's hard to know when each of these will occur.

[Scandium]

I was just merely making a point. The phrase "stay the course" and similar stuff gets thrown around quite a lot even though there's lots of data suggesting that for long durations of time that can be a terrible idea.

Even a simple SMA200 would make the ride quite a lot smoother.

ehh, could I have some citations for these? When has "stay the course"/buy and hold or whatever you want to call it, been a terrible idea over the long term? Terrible compared to what? It gets thrown around precisely because it's shown the be the best idea over the long term!

And also some data showing the predictive powers of SMA200? (what exactly does this mean in practice?)

[tommie]

I was just merely making a point. The phrase "stay the course" and similar stuff gets thrown around quite a lot even though there's lots of data suggesting that for long durations of time that can be a terrible idea.

Even a simple SMA200 would make the ride quite a lot smoother.

ehh, could I have some citations for these? When has "stay the course"/buy and hold or whatever you want to call it, been a terrible idea over the long term? Terrible compared to what? It gets thrown around precisely because it's shown the be the best idea over the long term!

And also some data showing the predictive powers of SMA200? (what exactly does this mean in practice?)

The problem with "buy and hold" is that it doesn't specify when this holding cease.
I do agree that buy and hold forever is great though. The slight problem being that we don't live for an infinite amount of time.

SMA200 isn't great and doesn't got any special predictive powers or golden properties.

[Scandium]

I was just merely making a point. The phrase "stay the course" and similar stuff gets thrown around quite a lot even though there's lots of data suggesting that for long durations of time that can be a terrible idea.

Even a simple SMA200 would make the ride quite a lot smoother.

ehh, could I have some citations for these? When has "stay the course"/buy and hold or whatever you want to call it, been a terrible idea over the long term? Terrible compared to what? It gets thrown around precisely because it's shown the be the best idea over the long term!

And also some data showing the predictive powers of SMA200? (what exactly does this mean in practice?)

The problem with "buy and hold" is that it doesn't specify when this holding cease.
I do agree that buy and hold forever is great though. The slight problem being that we don't live for an infinite amount of time.

SMA200 isn't great and doesn't got any special predictive powers or golden properties.

Sure it does. Holding "cease" when you sell 4% minus dividends each year to fund retirement. Or whatever else you saved up for. It's really not that complicated. I don't understand why you think this is such a problem? That's all "don't market time" means: sell when you need the money, not when you think it's a good time to sell.

Sent from my Nexus 5X using Tapatalk

[frugledoc]

I was just merely making a point. The phrase "stay the course" and similar stuff gets thrown around quite a lot even though there's lots of data suggesting that for long durations of time that can be a terrible idea.

Even a simple SMA200 would make the ride quite a lot smoother.

ehh, could I have some citations for these? When has "stay the course"/buy and hold or whatever you want to call it, been a terrible idea over the long term? Terrible compared to what? It gets thrown around precisely because it's shown the be the best idea over the long term!

And also some data showing the predictive powers of SMA200? (what exactly does this mean in practice?)

The problem with "buy and hold" is that it doesn't specify when this holding cease.
I do agree that buy and hold forever is great though. The slight problem being that we don't live for an infinite amount of time.

SMA200 isn't great and doesn't got any special predictive powers or golden properties.

Sure it does. Holding "cease" when you sell 4% minus dividends each year to fund retirement. Or whatever else you saved up for. It's really not that complicated. I don't understand why you think this is such a problem? That's all "don't market time" means: sell when you need the money, not when you think it's a good time to sell.

Sent from my Nexus 5X using Tapatalk

Forget SMA200, what a load of nonsense.  All you are trying to say is if you are in capital draw down it is better to take money out when the market is up rather than down, which is pretty obvious. 

[GreatLaker]

The problem with "buy and hold" is that it doesn't specify when this holding cease.
I do agree that buy and hold forever is great though. The slight problem being that we don't live for an infinite amount of time.

Buy and hold does not mean stupidly hold forever regardless of the fundamentals of the investment. It means buy stocks that fundamentals indicate are good investments over the long term, hold them regardless of short-term market conditions, and sell when fundamentals look like they will no longer give good returns, or when you need funds. No rational investor would think it means hold forever with no further analysis of whether it continues to be a good investment.

I dunno what SMA200 means and don't care since I am a buy and hold investor who stays the course.

Stay the Course: https://www.bogleheads.org/blog/bogleheads-principles-stay-the-course/

What Experts Say About Stay the Course: https://www.bogleheads.org/forum/viewtopic.php?t=164192

[Bajadoc]

Yes and no. And a definite maybe.

[RedmondStash]

Nothing is certain, but a crash is likely. As is, then, a recovery.

A crash doesn't mean the world ends, any more than a rainstorm means the sun has gone away for good.

[the.one.who.wonders]

This guy has a lot to say on the subject
https://en.wikipedia.org/wiki/Hyman_Minsky

[Mighty-Dollar]

If you are losing sleep over thoughts about a stock market crash then you are not properly diversified into bonds.

"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves" -- Peter Lynch

Since 1928 the stock market fallen 10% or more 90 times or once every 11 months.
Since 1928 the stock market fallen 20% or more 21 times or about once every 4 years.
Since 1928 the stock market fallen 30% or more 9 times or about once every 10 years.
Since 1928 the stock market fallen 50% or more just 3 times.