After the Fall: What History Tells Us About Markets That Drop 25%
When the market drops 25%, it doesn’t just sting—it rattles us. Headlines scream recession, portfolios shrink, the normal group of permabears wake from their slumber to talk gold, and emotions take over. In those moments, it’s natural to wonder: Is this different? Should I get out before it gets worse?
It’s times like these that I look back to what history has shown us in the past to gain reassurance.
History has a story to tell. And it’s a story worth listening to.
History of 25% Downturns
Since 1950, there have been nine times when the U.S. stock market fell at least 25% from a peak. Each of these declines felt different in the moment—caused by oil shocks, financial crises, runaway inflation, or global pandemics. But look past the cause, and a pattern starts to emerge.
On average, markets didn’t stop at -25%. Out of the 9 declines,
- 3 stopped close to 25%.
- 3 continued down to mid-30%
- and 3 dropped from 48% to 56%!
On average, this was around -37.6%. That’s deep enough to shake anyone’s confidence.
But after the fall comes the recovery.
The Rebound That Follows
Imagine it’s a year after one of these market bottoms. The headlines have quieted, but the scars are still fresh. Investors who stayed the course are probably still uneasy.
Yet historically, just 12 months after those big declines, markets were up an average of +21.6%.
Zoom out further:
- After three years, the average return was +40.6%.
- After five years: +89.7%.
- After ten years: +213.7%.
That means a $100,000 portfolio, if left untouched after the fall, grew to over $300,000 a decade later. Not in every case, but on average.
Even the worst 10-year outcome—following the 1973–74 bear market—still delivered a positive return of +38.3%.
Data collected from yCharts and Dimensional Returns web from 1950 to 2024. Returns are total returns inclusive of dividends reinvested. All data is believed to be accurate. Author Calculations. See https://gilbertwealth.com/disclosures/
The Real Test Isn't the Decline—It's Your Reaction to It
Of course, knowing this and living through it are two different things.
When the market fell nearly 57% during the 2008 financial crisis, it didn’t feel like an opportunity—it felt like the system was collapsing. But those who stayed invested saw +61.2% over the next five years.
In 2020, the COVID crash knocked markets down over 25% in a matter of weeks. Fear was everywhere. But just one year later, the market had rebounded +56.4%.
It’s easy to see the rebound in hindsight. It’s much harder to believe in it when you’re in the middle of the storm.
The Real Test Isn't the Decline—It's Your Reaction to It
The data doesn’t promise that every recovery will be smooth, or that all losses will be short-lived. But it does show this: the investors who endured the fall, who resisted the urge to flee, were the ones who reaped the rewards of the rise.
Markets fall. They always have.
But they also rise again—and staying in your seat through the turbulence has, more often than not, made all the difference.
Because the greatest returns didn’t come after avoiding the storm. They came after weathering it.