Will There Be a Stock Market Crash?

Investors live in fear of market crashes. So in this video, I look at the likelihood of a crash, how long they last and whether valuations affect the probability of it happening. I also discuss how likely a crash is at the moment and what you can do to help protect your investments against one.

What Else PensionCraft Offers:

Timestamps
00:00 Introduction
00:24 How likely is a market crash?
01:14 How long do they last?
07:14 The 2:6:16 rule
09:45 Do valuations affect crash probabilities?
11:50 What is the probability now?
14:23 What can I do to mitigate against a market crash?

Where Else You Can Find Me

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DISCLAIMER
All information is given for educational purposes and is not financial advice. Ramin does not provide recommendations and is not responsible for investment actions taken by viewers. Figures that are quoted refer to the past and past performance is not a reliable indicator of future results.

[Starstreak]

There is always a crash coming. Waste of time and energy guessing when the next one will happen.

[alexm]

Very sensible. Not scared at all! Thank you Ramin 😊❤

[mikealex]

Thank you very much for these numbers! I appreciate the work you put into your videos a lot!

[pranjalable]

**Summary of the Video:**

- **Introduction:**
- Discusses fear of market crashes and their impact on investments.
- Examines the likelihood, duration, and valuation effects on market crashes.
- Video sponsored by Incog, a data privacy app.

- **Defining a Market Crash:**
- Correction: 10% fall from an all-time high.
- Bear Market: 20% fall.
- Market Crash: 30% fall.
- Time period matters for defining and assessing the probability of crashes.

- **Duration of Market Crashes:**
- Market crashes are rare and usually short-lived.
- Longest recovery periods in history (e.g., Great Depression, WWII, 2008 Financial Crisis) took several years.
- Median time for the S&P 500 to recover is 61 days.

- **Probability of Market Crashes (**2:6:16** Rule):**
- Correction (10% fall): 16% chance annually.
- Bear Market (20% fall): 6% chance annually.
- Crash (30% fall): 2% chance annually.
- Probability decreases over longer time periods.

- **Impact of Valuations:**
- High valuations increase the probability of crashes.
- Currently, U.S. stocks are highly valued, increasing crash probability.
- Correction: 39% chance.
- Bear Market: 20% chance.
- Crash: 6% chance.

- **Mitigating Crash Risks:**
- Diversification helps but is limited in effectiveness.
- Stocks tend to move together during crashes.
- Better protection through assets like money market funds, short-term government bonds, or gold.

- **Incog App:**
- Helps control personal data from being collected and sold by data brokers.
- Offers a discount for viewers to manage their data privacy.

- **Final Advice:**
- Be aware of risks but don't panic.
- Diversify investments before crashes, not after.
- Consider safer assets for short-term financial needs.

[EdfromCanada]

As always a superb presentation. The quantification of risk is effectively presented. This is presented in an easy to understand manner. Thank you.

[ql]

Your lecture is full of wisdom. Thank you.

[remco]

As always a superb video. No scaremongering or clickbait thumbnails, just cool headed data and analysis. And very well done. Interesting to see that as far as the Ulcer index is concerned, there is no point in diversifying into a global equity fund, you might as well stick with the US equity market.

[ebrahimhabib]

Very cool Video Ramin thanks for sharing your experience

[MA-pudc]

Very informative video, thank you very much.

[timetraveller]

Excellent analysis Ramin, thanks. Really useful and well presented.

[AlessandroBottoni]

Great video, congratulations! If you worry about a possible market crash, *diversify* your investments. Keep 20% to 80% of your capital invested in *bonds* or others fixed-income asset (money saving bank accounts, for example). Put some Gold in your portfolio, as well (5% - 20%).

[temporarythoughts]

Very helpful overview! It would be great to learn how other asset classes perform in comparison

[danguee]

I sold almost in full in May/June 2020. Not at the bottom but once most of the bounce-back had occurred. My girlfriend and I decided the world was going into uncharted waters with a global lockdown with no known end - so we went for capital preservation. But we stupidly bought back in December on fomo, the market having surged in the last 5/6 months. What a mistake! Lesson to us: timing the market doesn't work for the likes of us and best just sit tight. Don't even go into 'defensive' stocks or suchlike. The market 'always' recovers at some point....

[auldare]

Very helpful for a new investor, determined to stick to DCA for 10-12 years.

[pww]

Very interesting presentation. Thank you. Question: Is the Shiller Monthly Log S&P Total Real Return data downloadable?

[chibus]

Awesome video; deeply data driven and explained incredibly simply and well.

[vinniewho]

thanks for pensioncraft this is a really excellent presentation of balanced facts that put investment decisions in lens of time horizon and statistical risk removing human fear and euphoria psychology that dominate many investor decisions.

[TheAdem]

Great video! And very timely thank you :)

[kelle_li]

I will continue to DCA into a handful of indexes same time each month, no matter what's happening; bull market, flat, bear market, crash.

[jimconutube]

Useful, thank you.
May I ask what the 2:6:16 rule becomes for a diversified World ex-USA index?