Market crashes can be caused by many things. Domestic causes include economic scams, political crises and banking disorders. Global events that affect supply chains, like trade wars and inflation, can also send stocks lower. When longheld bubbles burst, investors can experience losses that are difficult to recover from.
The 2020 global stock market crash, also known as the coronavirus market crisis or the COVID-19 panic, is unique in several ways. For one, it combined an unexpected economic event (a global stock market crash) with uncertainty about the development of a health crisis (the COVID-19 pandemic). This combination of a normal wealth decline with classic background risk—i.e., the risk of losing a job—is a rare combination that may have triggered additional fear among participants.
Our study also finds that participants who were already on track to reach their financial goals before the crash did not see a decrease in the likelihood of reaching their goals during the market crash. This is a good reminder that it’s important to diversify your portfolio across asset classes and markets, to ensure you have enough assets to last through volatile periods. This will help you stay the course during market volatility and potentially reap rewards that make it worthwhile to stick with your plan. Whether you’re a trader or investor, diversifying your portfolio can help you manage volatility and stay focused on your goals. Learn more about diversifying your portfolio here.