How to Invest During a Stock Market Crash

Crashes Are a Normal Part of Investing

Stock market crashes are not rare, unexpected events — they are a regular feature of equity investing that every long-term investor will experience multiple times. The UK and global stock markets have experienced major crashes roughly every 7 to 10 years on average: the dot-com crash of 2000 to 2002 (NASDAQ fell over 75 per cent), the global financial crisis of 2007 to 2009 (FTSE 100 fell approximately 45 per cent), the Covid crash of March 2020 (global markets fell 35 per cent in weeks), and the inflation-driven bear market of 2022. Each felt uniquely frightening at the time. Each was followed by recovery and new highs.

What Causes Market Crashes?

Market crashes have many triggers: financial crises, recessions, pandemics, geopolitical conflicts, central bank policy errors, or simply the bursting of asset price bubbles inflated by excessive optimism. What they share is a rapid repricing of future earnings expectations downwards, amplified by fear-driven selling from investors who cannot or will not bear further losses. The media environment during a crash — relentless negative headlines, expert predictions of further falls, comparisons to previous catastrophes — amplifies fear and makes panic selling feel like the rational response.

The Wrong Response: Selling

Selling your investments during a market crash is almost always the wrong decision for a long-term investor. It converts a temporary paper loss into a permanent real loss, and it creates a second problem: deciding when to reinvest. Many investors who sell during a crash wait for the market to "stabilise" before buying back — but markets typically recover sharply and unpredictably, and these investors miss the recovery entirely. Studies of investor behaviour consistently show that the average retail investor's returns significantly lag the market index returns, primarily because they sell near bottoms and buy near tops.

The Right Response: Continue and Consider Adding

For investors with an automated regular investment plan, the correct response to a crash is usually to do nothing — let the automation continue. Your monthly contributions now buy more units at lower prices, improving your average cost per unit and setting up better long-term returns. For investors with available cash — perhaps an emergency fund in excess of what you need, or spare savings — a crash can represent an attractive opportunity to invest a larger amount at discounted prices. This is not about timing the market perfectly — you will never buy at the exact bottom — but about recognising that significantly lower prices are, all else equal, more attractive entry points than peak prices.

Practical Steps During a Market Crash

Stop checking your portfolio daily. Reading negative headlines and watching your balance fall triggers emotional responses that are counterproductive to good decision-making. Review your asset allocation: if you genuinely cannot sleep due to portfolio losses, you may have taken more risk than is appropriate for your psychological tolerance, and rebalancing towards a more conservative allocation (in a tax-free ISA) may be warranted — not as a panic response, but as a considered recalibration. Write down your investment strategy and reasons for your allocation and refer back to it when tempted to deviate.

Learning from History

Every market crash in history has eventually been followed by a full recovery. The FTSE 100 recovered from the 2008 financial crisis. Global equity markets recovered from the 2020 pandemic crash in less than six months. Investors who stayed invested through all of these periods and continued their regular contributions came out significantly ahead of those who sold and waited on the sidelines. History does not guarantee the future, but the historical evidence strongly supports staying invested through market downturns as the optimal strategy for long-term investors.