Stock market crash guide: How to master market crises with confidence and profit in the long term

Sharp price falls often trigger precisely what is particularly dangerous on the stock market: emotional trading. Fear, uncertainty and the urge to take action are natural reactions – but rarely lead to smart investment decisions.

In this article, we show you how we proceeded in the last correction phase, what considerations guided us – and in which two situations a sale may still be necessary.

We also take a look back: what patterns have emerged in previous stock market crashes – and how you can use this knowledge for future investment decisions.

Markets in upheaval – between correction and turning point

The financial markets are likely to remain volatile for some time to come. Donald Trump’s return to the White House, geopolitical tensions and economic policy uncertainties in the US and China are noticeably increasing the nervousness of many investors. The markets are reacting to this with sharp swings – sometimes downwards, sometimes with short-lived recoveries.

In such phases, many people ask themselves the question: Is this still part of normal stock market activity – or are we experiencing a real turning point?

We are also feeling how political uncertainty triggers the need for control – and thus the temptation to become active in the portfolio. But right now it is becoming clear how important it is not to make financial decisions based on gut instinct. Not every downturn calls for a reaction – but some upheavals can make a strategic rethink necessary.

We will discuss the various trading options in the event of a stock market crash later on. However, one thing is crystal clear in advance: anyone who sells hastily during a crisis, parks the proceeds on the sidelines and only re-enters when the stock market has recovered risks significant losses in their portfolio. The following chart shows the impact this can have.

Psychology in crash times – why our gut feeling is rarely a good guide

When the stock markets fall, the pulse rises. The feeling of having to do something now is deeply rooted in us – in evolutionary terms, reacting quickly was often essential for survival. But it is precisely this reflex that is problematic on the stock market: those who allow themselves to be driven by fear or short-term headlines rarely make good decisions.

Typical emotional reactions in such phases are

• Fear of loss: We psychologically weigh losses more heavily than gains. The thought that things could go even further down tempts us to get out at the worst possible time.
• Herd behavior: If “everyone” is selling, it seems right to do so – even if your own situation is stable.
• Illusion of control: We want to reduce uncertainty by actively intervening, although doing nothing would often be wiser.

These psychological traps are not a weakness – they affect us all, even experienced investment professionals. That is why it is so important to be aware of them and to have clear principles for dealing with market fluctuations. This has also been our guiding principle in the current phase: first observe, then think – and only then, if at all necessary, act.

A cool head almost always pays off on the stock market – emotional trading, on the other hand, is unfortunately very rare.

Sudden stock market crash: you now have these three options

Option 1 in the event of a stock market crash: sell

The exit step, which is usually taken out of fear – but can be justified in certain cases. Basically, we see two legitimate reasons for selling:

Reason #1: Personal-practical reasons

Anyone who is dependent on capital in the short term or realizes that their own risk profile no longer matches their life situation can consider a (partial) sale. However, there is often a strategic oversight in such cases: anyone investing in shares should have a sufficiently long investment horizon – ideally ten years or more. This is because past experience shows that share prices always recover over longer periods of time. Anyone who has to sell in the middle of a correction because the money will soon be needed has not properly aligned their portfolio with their needs.

Reason #2: Fundamental system doubts

Another reason for selling is a deep mistrust of the capital markets themselves. Anyone who is convinced that capitalism will fail in the long term or that free markets are structurally on the brink of collapse must fundamentally question their investment strategy. In this case, the problem is not a fall in prices, but confidence in the entire system.

Conclusion

Whatever the reason, a decision to sell should never be based on a gut feeling, but on a sound assessment – sober, strategic and professional.

Option 2 in the event of a stock market crash: sit it out

Probably the most common – and often the most sensible – strategy is to do nothing. If you have a broadly diversified portfolio that matches your own risk capacity and risk appetite, you can usually withstand temporary downturns well. Historically, markets have often recovered more quickly after crises than many would have expected. Patience therefore pays off in most cases – provided you have the nerve.

Doing nothing also means not interrupting the current savings plan, but simply letting it continue and enjoying the favorable prices.

If you allow your savings plan to continue unperturbed in times of crisis or even increase your investments as in option 3 below, you will benefit from the cost-average effect. This means that you get more units for the same amount thanks to the lower stock market prices.

Option 3 in the event of a stock market crash: buy in

The two quotes often attributed to the banker Nathan Rothschild – “Buy when the guns are thundering” and “Buy when there’s blood in the streets – even if it’s your own.” – get to the heart of the idea of anti-cyclical investing. They are emblematic of the strategy of buying boldly, especially in times of great uncertainty.

Buying during a market correction can actually be one of the best ways to profit from declines – provided you follow a rules-based strategy.

Let’s assume you have a portfolio with a target allocation of 80% equities and 20% liquidity. Your total assets amount to CHF 200,000, so:

• Equities: CHF 160,000 (80% of the portfolio)
• Liquidity: CHF 40,000 (20% of the portfolio)

Now the stock market corrects by 20%, which affects your portfolio. Your assets now only amount to CHF 168,000 and the allocation has changed:

• Equities: CHF 128,000 (decreases to 76% of the portfolio)
• Liquidity: CHF 40,000 (increases to 24% of the portfolio)

To restore your original target allocation of 80% equities and 20% liquidity, you need to increase your equity allocation so that your equity position returns to 80% of the new total assets of CHF 168,000:

• Shares: CHF 134,400 (80% target allocation restored)
• Liquidity: CHF 33,600 (20% target allocation restored)

This means you invest an additional CHF 6,400 from your savings pot in equities (ETFs) to rebalance your portfolio.

This rule-based approach helps you not to trade out of fear or euphoria in a market downturn, but to maintain your original strategy. If you continuously follow this approach, you can benefit from lower prices while staying focused on your long-term goals.

Please note that you should always leave your liquidity reserve untouched when buying shares or rebalancing in this way. As a rule of thumb, you should keep at least three months’ expenses as a cash buffer for short-term bottlenecks or unexpected expenses. This will keep you financially flexible at all times.

How we acted – two paths, one goal

After giving you an overview of the three options for responding to a market correction – sell, sit out or buy – we would like to show you how we took concrete action during the last price drop caused by Trump’s tariff hammer Because theory is one thing. It becomes crucial when it becomes real.

Stefan remains calm – and continues to invest consistently

Stefan was not deterred and stuck to his long-term plan: in December 2024 – shortly before the escalation of the tariff dispute – he launched a new savings plan via VIAC Invest in a global equity portfolio to supplement his ETF portfolio. His goal: to combine steady wealth accumulation with ongoing rebalancing – automatically, in a disciplined manner and without hectic interventions.

After all, if the originally targeted asset allocation deviates from the actual portfolio over time due to market movements, manual reallocations are not necessarily required. With the savings plan à la VIAC Invest, findependent or other low-cost robo-advisors, you can not only build up your assets conveniently by means of a standing order, but also restore the balance in the portfolio step by step – simply at the touch of a button.

To illustrate: the US equity component was slightly above the target value, which is why he underweighted it in the new savings plan.

This approach has clear advantages: When prices fall, Stefan gets more shares for the same amount thanks to the cost-average effect already explained. At the same time, the “standing order” method minimizes the risk of investing large sums at an unfavourable time – and provides emotional stability when the markets get stormy.

Toni chooses a more offensive approach – with system, courage and leverage

Toni also relies on a clear plan – but takes a more offensive approach. He also remains fully invested throughout and does not hold back cash for “better” prices. Instead, he makes targeted use of Lombard loans during pronounced setbacks of 20%, 30% and 40% to strengthen his existing portfolio with additional capital.

His approach follows fixed rules: Moderate leverage staggered according to the strength of the correction (loan-to-value from 20% to max. 40%), no unnecessary risk and no “gut instinct” bets.

Thanks to the generally low level of interest rates and the attractive conditions offered by Interactive Brokers – Toni paid just 1% interest on his last securities loan in April 2025 – the strategy remains viable, particularly in periods of low interest rates.

For broadly diversified ETF portfolios such as the MSCI World, the required maintenance margin is typically around 15% of the total portfolio value – i.e. measured by the market value of all positions, without deducting the borrowed capital used.

Toni’s strategy is designed in such a way that even major setbacks – such as the approximately 55% slump during the financial crisis – would not have triggered a margin call. Although borrowed capital is used, which fundamentally increases the risk, the loan-to-value limits are deliberately conservative. As a result, Toni can remain calm even in the event of strong price fluctuations and retains control over his positions.

In recent years, Toni has successfully applied this strategy during three significant setbacks: the “Trump tariff hammer” in 2025, the stock market decline in 2022 and the coronavirus crash in 2020. As soon as share prices return to their previous highs, Toni sells the purchased shares and uses the proceeds to repay the Lombard loan.

The advantage of his leverage strategy: immediate effect and maximum capital efficiency. The downside: higher volatility – in both directions.

You can find out more about leverage with securities loans and the associated risks in our article “Lombard loans when buying ETFs”.

Two paths, one attitude

Apart from a liquidity reserve for unexpected expenses, neither Stefan nor Toni hold back liquidity to “wait” for better market moments – because we don’t believe in market timing, but in time in the market. The key is not to hit the perfect moment, but to stick with it – with discipline, a system and a clear plan.

As different as our approaches are, the underlying principle is the same: to remain invested for the long term, to act rationally and to use market weakness as an opportunity.

A look back: what history teaches us

In stock market crashes (rapid correction) or bear markets (slower correction), share prices fall by 20% or more from recent highs due to widespread pessimism and negative investor sentiment until a new temporary low is reached. Price falls of between 10% and 20% are referred to as a stock market correction.

Stock market crashes always feel scary at the time they happen – but they are nothing new. If you take a step back, you will realize that the financial markets have experienced many crises in the past – and have recovered each time. A look at history will help you to better understand current turbulence and avoid panic reactions.

The considerable growth of an invested US dollar in the chart above underlines the enormous advantages of a long-term investment. However, it has been anything but a steady rise over this super-long period of over 150 years. There have been no less than 19 market collapses of varying severity.

Five severe stock market crashes

In the following, we would like to take a closer look at five particularly spectacular stock market crashes:

• 2020: Corona pandemic
• 2008: Global financial crisis
• 2000: Bursting of the Internet bubble
• 1987: Black Monday
• 1929: The beginning of the Great Depression

2020: Corona pandemic

On March 12, 2020, one day after the official declaration of the pandemic by the international health authority WHO, stock markets around the world plummet. The Dow Jones loses over 10%, the biggest daily loss since “Black Monday” in 1987. The following days also see a steep decline – on 16 March, the US market falls again by over 12%. And yet, just a few months later, many indices are back at pre-crisis levels.

We covered the coronavirus crash in detail in the article “Stock market crash 2020: What should investors do now?”.

2008: Global financial crisis

Starting with the US real estate bubble (especially the subprime market), the global financial system begins to falter. After the Lehman bankruptcy in September 2008, stock markets around the world come under pressure: from January to October, many indices lose 30 to 50%. The USA slips into a deep recession – and yet one of the longest stock market boom in history follows from 2009.

2000: Bursting of the Internet bubble

The euphoria surrounding new technologies and Internet companies drives the stock markets to record highs – until reality strikes in the spring of 2000. The Nasdaq loses almost 30% in April alone and as much as 39.3% over the year. Many tech companies disappear, but in the long term the technology sector develops into a growth engine.

1987: Black Monday

On October 19, 1987, the Dow Jones loses 22.6% – in a single day. The reasons: Budget deficits, interest rate hikes and automated sales programs. Panic spreads around the world. The shock is profound, but the black clouds in the stock market sky gradually dissipate: a year later, share prices have largely recovered.

1929: The beginning of the Great Depression

Perhaps the most famous crisis begins with a price slide on October 24, 1929, “Black Thursday”. What follows is a massive sell-off that leads to the worst economic crisis ever recorded. Share prices plummeted by up to 80% globally and it took over 20 years for the markets to fully recover – an extreme case that was also characterized by the lack of an economic policy response.

Your long-term success starts now

Crises are inevitable – they are just as much a part of the markets as periods of stability and growth. But what counts is not how often the markets crash, but how you react to these setbacks. The past shows us unequivocally that markets always bounce back in the long term and you will come out stronger after stock market crashes if you stay calm, follow your plan and don’t panic.

Or as the legendary investor Warren Buffett aptly put it: “Only when the tide goes out can you see who is swimming without swimming trunks.”

Use the lessons learned from past crises to refine your own plan tailored to your individual goals and risk profile. Remember: the stock market is a marathon, not a sprint.

Your successful path on the financial markets begins with the conviction to remain calm – even when the markets threaten to go crazy. Even in turbulent times, those who take a long-term, considered approach will be among the winners.

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Disclaimer

Disclaimer: Investing involves risks of loss. You must decide for yourself whether you want to bear these risks or not.

Errors excepted: We have written this article on the stock market crash to the best of our knowledge and belief. Our aim is to provide you as a private investor with the most objective and meaningful financial information possible. However, if we have made any mistakes, forgotten important aspects and/or are no longer up to date, we would be grateful if you could let us know.