Quick Answer
When the market drops, the historical record says: stay invested and keep contributing. Every S&P 500 downturn in history has eventually recovered to new highs. For ITIN holders the approach is the same as any investor: don't sell, increase contributions if possible, and rebalance to your target allocation.
Why Is Selling During a Market Crash a Mistake?
The Math of Loss Locking
Selling during a crash is a mistake because it converts a temporary paper loss into a permanent one. Say your portfolio drops from $50,000 to $35,000 — a 30% loss. If you panic and sell, you lock in that $15,000 loss, and you forfeit the recovery bounce that follows nearly every historical crash.
Six months later, the market recovers to $50,000. But you sold at $35,000. You missed the 43% recovery bounce ($15,000 gain from $35k to $50k).
Outcome: You sold at the worst time and locked in a permanent loss. Someone who held and did nothing is back to even.
It Happens Every Single Time
During the 2020 COVID crash (34% drop), many panicked and sold in March. The market recovered completely by July. Panic sellers are still down 34% while holders are up 50%+ from the March lows.
This isn't luck. This is pattern: crashes recover because markets are forward-looking. The crash reflects fear. The recovery reflects the fact that companies kept earning.
What Were the 5 Worst Market Crashes in History?
| Crash | Decline | Recovery Time |
|---|---|---|
| Great Depression (1929) | 79% | 25 years |
| 1973 Stagflation | 52% | 7 years |
| Black Monday (1987) | 21% | 2 years |
| Dot-Com Bubble (2000–02) | 50% (NASDAQ 78%) | 5 years |
| Great Recession (2008) | 60% | 5.5 years |
| COVID-19 (2020) | 34% | 4 months |
What This Data Means
The 5 worst market crashes were the Great Depression (1929, 79% decline), the 1973–74 bear market (52%), the Dot-Com crash (2000, 50%), the 2008 financial crisis (60%), and COVID-19 (2020, 34%). Except for the 1929 outlier, every one of them recovered fully within 5 to 7 years.
The better news: Recent crashes recover faster. COVID recovered in 4 months. 2008 took 5.5 years because it was a structural financial crisis. Most crashes are much faster.
The key insight: If you're investing for 30+ years (which ITIN holders building wealth should be), a 5-year crash is noise. You're already in the market earning returns while the crash is happening — you don't time it perfectly, but you're still ahead of someone who panicked and sat out in cash.
What Should I Do During a Market Crash?
Option 1: Do Nothing (The Winning Move)
Action: During a market crash, the winning move is almost always to do nothing — keep your money invested, don't sell, and don't panic. History shows every one of the 5 worst crashes recovered within 7 years, so holding lets you capture the rebound instead of locking in losses.
Why it works: Your index fund is buying low automatically (through dividends being reinvested). You're building more shares at discount prices. When the recovery comes, you own more shares — more gains on the upswing.
Time commitment: 0 hours. You don't have to monitor it. Just ignore the news.
Option 2: Dollar-Cost Averaging (Buy the Dip)
Action: Keep contributing regularly. During the crash, your $500/month buys more shares because prices are low.
Example: Your usual $500 buys 5 shares at $100/share. During a crash, the same $500 buys 10 shares at $50/share. When recovery comes, you own twice as many shares. Larger gains.
Why it works: You're buying fear at discount. The market recovers, and your discount purchases create outsized gains.
Psychological benefit: You feel like you're "doing something." You're not just watching. This helps many investors stay calm.
Option 3: Don't Do This
Selling: Locks in losses. You miss the recovery. Historical data shows this is the worst choice every single time.
Moving to cash: You think you're "protecting" yourself. You're actually locking in a loss and betting that you'll time the recovery perfectly. Nobody does this consistently.
Trying to pick the bottom: Even professional investors can't do this. The "bottom" is only obvious in hindsight. Trying to time it costs you money.
What If You Need the Money?
Only exception to "stay invested": If you need the money within the next 1 to 3 years, a crash is a real problem, because you could be forced to sell at a loss before the market recovers. Money you'll spend soon should not be sitting in stocks in the first place.
Solution: Build a cash buffer for near-term needs. Use the rule: if you need money in the next 3 years, it shouldn't be in stocks. Keep it in savings or money market funds.
Long-term money (5+ years) should be in index funds. During a crash, you can afford to wait.
What Is the Psychological Reality of Staying Invested Through a Crash?
The psychological reality is that a 30% crash feels catastrophic even when the math says hold. News coverage turns apocalyptic, friends panic, and every instinct screams "sell." Evolution wired us to fear losses more than we value gains, which is exactly why panic selling is so common — and so costly.
That instinct is wrong. Evolution made us fear losses more than appreciate gains. That's why panic selling happens. But in investing, fear is expensive.
The investors who win are the ones who are bored during crashes. They've got a plan, they're not checking prices, and they're not panicking. In 5 years, they're 40% richer than the people who sold in fear.
Frequently Asked Questions
Should I sell when the market crashes?
Usually no. Selling turns a paper loss into a real one and you miss the recovery that has historically followed every crash. Staying invested — or buying more — has been the winning move.
What should I do during a market crash?
For most long-term investors: do nothing and keep contributing on schedule. If you have spare cash and a long time horizon, continuing to dollar-cost average buys shares at lower prices.
How long do market recoveries take?
It varies, but the U.S. market has recovered from every major crash in history — sometimes in months, sometimes a few years. The investors who lost permanently were the ones who sold at the bottom.
What if I need the money soon?
Money you will need within about five years should not be in stocks to begin with — keep it in cash or an emergency fund. That is what lets you leave your invested money alone during a crash.