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Welcome to my wall. Through the information displayed in this project, you'll learn what can cause the stock market to collapse, how past market crashes have changed the course of history, and what can be done to avoid that scenario. To define a stock market crash, it's a sharp decline of stock prices across a major cross-section of a stock market, resulting in a loss of paper wealth.

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Website #1 - What is a Stock Market Crash?

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Website #1 - What is a Stock Market Crash?

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In summary, the article explains the basics of a stock market crash may entail, and what typically causes a collapse. In addition, it provides readers with a little insight about terms they may encounter when discussing the stock market. The first major paragraph dives into speculation specifically surrounding what leads to the crash, mentioning the 1929 Crash, early-2000's tech stock crisis, and the crash in 2008. Later in the piece, they discuss the market crash in India that occurred in 2016. Beyond that, the site also provides an FAQ section at the end of the page, that utilizes some of the information brought up earlier in the piece to answer commonly asked questions, including how some people can actually profit from a stock market crash.

Within this site are numerous descriptive paragraphs used to help understand the jargon we may encounter later on. For example, the definition and difference between a Bull Market, a Bear Market, and a Stock Market Bubble.

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What is Stock Market Crash? Meaning, Causes & Examples

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Stock Market Crash - Stock market collapse is a sudden and unexpected decline in stock prices. A stock market fall can occur as a result of a large disastrous event, an economic crisis, or the bursting of a long-term speculative bubble.

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This article from The Canadian Encyclopedia explains the effects of the Great Crash of 1929, which originally began on Oct. 24 with the New York Stock Exchange. A record 12.8 million shares were sold causing a mass closure of accounts, with the effects quickly spreading across the border. First in Toronto, then in Montréal, markets experienced a sharp drop in share prices. But the real shocker came on Oct. 29, when Wall Street experienced its own drop. An unbelievable 16.4 million shares were sold, smashing the number set in New York. As time past, the 50 most active Canadian stocks' market values fell below half their original value across the board, and some historians believe the Great Crash was the cause of the Great Depression that soon followed.

I chose this article because as I mentioned a little earlier, many believe the Great Crash led to the Great Depression that would come to heavily affect the rest of the developed world. Beyond this, the Great Depression led governments to push tariffs that divided countries, and we were greeted with the Second World War. For one economic event in New York to create this butterfly effect that resulted in the deadliest conflict in human history, is very impactful to process.

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The wheat glut of 1928 threw the Winnipeg Grain Exchange into a spiral, triggering a depression in Canada's economy.

It began to take shape on 24 October 1929, Black Thursday. "Stock Speculators Shaken in Wild Day of Panic," shouted the front page of the next day's Toronto . The New York Stock Exchange, the accompanying stories reported, had experienced massive declines in wild trading, with a record 12.8 million shares sold. Thousands of accounts were wiped out before leading bankers and industrialists intervened to halt the slump. The dread extended to the Toronto markets, the Globe declared, and "rocked" share prices there. In Montréal, forced selling ran rampant, and practically every stock finished the day down.

"The biggest crash ever recorded," lamented the famed British economist John Maynard Keynes, whose own investments were entirely gone by the end of the year ( see Keynesian Economics).

Tuesday, 29 October - or Black Tuesday - was worse still. On Wall Street, 16.4 million shares were sold, almost 4 million more than Black Thursday's unprecedented totals. The New York Times industrial average plummeted, eliminating a strong year's gains, and the investment giant Goldman Sachs Trading Corporation was reduced to 58 per cent of its worth the night before.

Credit: Library and Archives Canada/C-020594.\r\n

In Toronto and Montréal, liquidation records were set. Horrified investors clogged the financial districts, while employees in the exchanges and the brokerage houses worked themselves to near-collapse in an attempt to corral the paperwork. The Canadian Annual Review of Public Affairs reckoned that "never before the 1929 crash had amounts that ran into billions of dollars been lost on the Canadian Stock Exchanges in so brief a period of time." In Montréal, some 500,000 shares were sold (5 times the usual amount); in Toronto, 330,000 were sold (13 times the usual).

"The singular feature of the great crash of 1929 was that the worst continued to worsen," wrote Canadian-born economist John Kenneth Galbraith in his seminal book The Great Crash 1929 (1954). The markets jumped back to life, but briefly. The setbacks returned and they persisted.

From the peak of the bull market in 1929 to mid-1930, the 50 most active Canadian stocks diminished on average to well under half their market value. Shareholders in International Nickel and Imperial Oil lost more than $500 million each, those in Canadian Pacific Railway over $60 million.

Standard Oil of New Jersey's John D. Rockefeller, the Bill Gates of his day, was caught up in the turmoil. On 13 November 1929, yet another disastrous day for the markets, he put his family's money behind a guarantee that his enterprise's shares would not fall below 50. In early 1932, the price was 20.

Historians and economists debate the importance of the Great Crash. Some claim that it brought on the Great Depression that blighted the 1930s across the industrialized world; others scarcely mention it in their narratives of the decade-long economic ordeal, an international phenomenon with many origins and explanations.

The economic downturn seemed moderate enough when Conservative leader R.B. Bennett hit the election trail in 1930. But Bennett was able to use it to good effect to defeat William Lyon Mackenzie King's Liberals, who'd been in power for nearly a decade and were reluctant to acknowledge the crisis brewing in Canada.

Six months after the election, Prime Minister Bennett realized that the country was in a severe economic depression. The low point came in 1933, when national output and exports - crucial then as now to the Canadian economy ( see Economic Indicators) - were down a third from late 1920s levels. Farms of the West were in crisis ( see Drought). Nearly a third of the workforce was unemployed.

The rich and well-stuffed Bennett was the butt of cruel jokes and the symbol of everything Canadians loathed. Though he tried to turn the tide, establishing the Bank of Canada and presenting his New Deal for social service reform in 1935, it was too little too late. In the next election, Canadians ousted Bennett.

The economy struggled back, yet very slowly, and a late 1930s recession interrupted the upward trend ( see Business Cycles). In 1939, there were still hundreds of thousands of Canadians on what passed for financial relief, with monthly rates for a family of five varying from $60 in Calgary to $19 in Halifax. This was before the rise of the welfare state in the ensuing decades.

Year upon year of economic woe set peoples against one another in a global depression that left few markets unscathed. In response, governments heaped on the tariffs, wanting to protect themselves and punish others ( see Protectionism). Democracies turned in on themselves, selfish and frightened. Capitalism had apparently failed, and its opponents were in fashion. Territory-hungry dictatorships flourished ( see Fascism). In this respect, the Second World War was a child of the Great Depression. Then, in a twist of fate, the economic prosperity of war ended Canada's Depression.

( See also Economic History.)

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The following article is an editorial written by The Canadian Encyclopedia staff. Editorials are not usually updated. In late October of 1929, terror seized th...

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Website #3 - Housing Market Crash of 2008

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Website #3 - Housing Market Crash of 2008

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This article summarizes the events of the infamous housing market crash in 2008, which is believed to be one of if not the worst financial collapse in U.S history. The crash stemmed from subprime mortgage loans that were sold to commercial investors, and borrowers who carried low credit scores could still be approved for these loans. When a vast number of these borrowers ultimately defaulted on their subprime mortgages, the stock market collapsed. In addition to a short history lesson about mortgage-related investment products, the article also delves into the string of government bailouts that quickly followed, which some believed could help stabilize the market. As far as both I and the author of this article are concerned, however, these bailouts do little to actually teach the big banks a lesson. In reality, this situation could've been avoided had they implemented stronger financial policies.

I included this article purely because of the historical significance. Much like the crash in 1929, the effects of the housing crisis will be felt for years to come, and reflects on how the economy thrives on these short-sighted deals. Banks and investors only care about the present - as long as they're making ridiculous amounts of money, it doesn't matter if it affects the lower class. Prior to reading this article, my only knowledge of the crisis came from my parents' recollection of the event, and the film "The Big Short". I didn't know just how far the Dow had fallen over the following month after the announcement of the bailout, which was a ludicrous 3,601 points -- from 11,483 on Sept. 19, 2008, to 7,882 on Oct. 10, 2008.

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Mortgage crisis. Credit crisis. Bank collapse. Government bailout. Phrases like these frequently appeared in the headlines throughout the fall of 2008. This period also ranks among the most horrific in U.S. financial market history. Those who lived through these events will likely never forget the turmoil.

So what happened, exactly, and why? Read on to learn how the explosive growth of the subprime mortgage market, which began in 1999, played a significant role in setting the stage for the turmoil that would unfold just nine years later in 2008 when both the stock market and housing market crashed.

Unprecedented Growth and Consumer Debt

Subprime mortgages are mortgages targeted at borrowers with less-than-perfect credit and less-than-adequate savings. An increase in subprime borrowing began in 1999 as the Federal National Mortgage Association (widely referred to as Fannie Mae) began a concerted effort to make home loans more accessible to those with lower credit and savings than lenders typically required.

The idea was to help everyone attain the American dream of homeownership. Since these borrowers were considered high-risk, their mortgages had unconventional terms that reflected that risk, such as higher interest rates and variable payments. While many saw great prosperity as the subprime market began to explode, others began to see red flags and potential danger for the economy.

Robert R. Prechter Jr., the founder of Elliott Wave International, consistently argued that the out-of-control mortgage market was a threat to the U.S. economy as the whole industry was dependent on ever-increasing property values. As of 2002, government-sponsored mortgage lenders Fannie Mae and Freddie Mac had extended more than $3 trillion worth of mortgage credit. In his 2002 book Conquer the Crash, Prechter stated, "confidence is the only thing holding up this giant house of cards."

The role of Fannie and Freddie is to repurchase mortgages from the lenders who originated them and make money when mortgage notes are paid. Thus, ever-increasing mortgage default rates led to a crippling decrease in revenue for these two companies.

Adjustable-Rate Mortgages

Among the most potentially lethal of the mortgages offered to subprime borrowers were the interest-only ARM and the payment option ARM, both adjustable-rate mortgages (ARMs). Both of these mortgage types have the borrower making much lower initial payments than would be due under a fixed-rate mortgage. After a period of time, often only two or three years, these ARMs reset. The payments then fluctuate as frequently as monthly, often becoming much larger than the initial payments.

In the up-trending market that existed from 1999 through 2005, these mortgages were virtually risk-free. Borrowers could end up with positive equity despite their low mortgage payments because their homes had increased in value since the purchase date. If they could not afford the higher payments after their mortgage rates reset, they could just sell the homes for a profit. However, many argued that these creative mortgages were a disaster waiting to happen in the event of a housing market downturn, which would put owners in a negative equity situation and make it impossible to sell.

Increased Consumer Debt

To compound the potential mortgage risk, total consumer debt, in general, continued to grow at an astonishing rate. In 2004, consumer debt hit $2 trillion for the first time.

The Rise of Mortgage-Related Investment Products

During the run-up in housing prices, the mortgage-backed securities (MBS) market became popular with commercial investors. An MBS is a pool of mortgages grouped into a single security. Investors benefit from the premiums and interest payments on the individual mortgages the security contains.

This market is highly profitable as long as home prices continue to rise and homeowners continue to make their mortgage payments. The risks, however, became all too real as housing prices began to plummet and homeowners began to default on their mortgages in droves. At the time, few people realized how volatile and complicated this secondary mortgage market had become.

Another popular investment vehicle during this time was the credit derivative, known as a credit default swap (CDS). CDSs were designed to be a method of hedging against a company's creditworthiness, similar to insurance. But unlike the insurance market, the CDS market was unregulated, meaning there was no requirement that the issuers of CDS contracts maintain enough money in their reserves to pay out under a worst-case scenario (such as an economic downturn). This was exactly what happened with American International Group (AIG) in early 2008 as it announced huge losses in its portfolio of underwritten CDS contracts that it could not afford to pay upon.

The Markets Begin to Decline

By March 2007, with the failure of Bear Stearns due to huge losses resulting from its underwriting many of the investment vehicles linked to the subprime mortgage market, it became evident that the entire subprime lending market was in trouble. Homeowners were defaulting at high rates as all of the creative variations of subprime mortgages were resetting to higher payments while home prices declined.

Homeowners were upside down-they owed more on their mortgages than their homes were worth-and could no longer just flip their way out of their homes if they couldn't make the new, higher payments. Instead, they lost their homes to foreclosure and often filed for bankruptcy in the process. The subprime meltdown was beginning to take its toll on homeowners and the real estate market.

Despite this apparent mess, the financial markets continued higher into Oct. 2007, with the Dow Jones Industrial Average (DJIA) reaching a closing high of 14,164 on Oct. 9, 2007. The turmoil eventually caught up, and by Dec. 2007 the United States had fallen into a recession. By early July 2008, the Dow Jones Industrial Average would trade below 11,000 for the first time in over two years. That would not be the end of the decline.

Lehman Brothers Collapses

On Sept. 6, 2008, with the financial markets down nearly 20% from the Oct. 2007 peaks, the government announced its takeover of Fannie Mae and Freddie Mac as a result of losses from heavy exposure to the collapsing subprime mortgage market. One week later, on Sept. 14, major investment firm Lehman Brothers succumbed to its own overexposure to the subprime mortgage market and announced the largest bankruptcy filing in U.S. history at that time. The next day, markets plummeted and the Dow closed down 499 points at 10,917.

The collapse of Lehman cascaded, resulting in the net asset value of the Reserve Primary Fund falling below $1 per share on Sept. 16, 2008. Investors then were informed that for every $1 invested, they were entitled to only 97 cents. This loss was due to the holding of commercial paper issued by Lehman and was only the second time in history that a money market fund's share value has " broken the buck."

Panic ensued in the money market fund industry, resulting in massive redemption requests. On the same day, Bank of America (BAC) announced it was buying Merrill Lynch, the nation's largest brokerage company. Additionally, American International Group (AIG), one of the nation's leading financial companies, had its credit downgraded as a result of having underwritten more credit derivative contracts than it could afford to pay off.

Government Starts Bailouts

On Sept. 18, 2008, talk of a government bailout began, sending the Dow up 410 points. The next day, Treasury Secretary Henry Paulson proposed that a Troubled Asset Relief Program (TARP) of as much as $1 trillion be made available to buy up toxic debt to ward off a complete financial meltdown.

Also on this day, the Securities and Exchange Commission (SEC) initiated a temporary ban on short-selling the stocks of financial companies, believing this would stabilize the markets. The markets surged on the news and investors sent the Dow up 456 points to an intraday high of 11,483, finally closing up 361 at 11,388. These highs would prove to be of historical importance as the financial markets were about to undergo three weeks of complete turmoil.

Financial Turmoil Escalates

The Dow would plummet 3,600 points from its Sept. 19, 2008 intraday high of 11,483 to the Oct. 10, 2008 intraday low of 7,882. The following is a recap of the major U.S. events that unfolded during this historic three-week period.

Sept. 21, 2008

Goldman Sachs (GS) and Morgan Stanley (MS), the last two of the major investment banks still standing, convert from investment banks to bank holding companies to gain more flexibility for obtaining bailout funding.

Sept. 25, 2008

After a 10-day bank run, the Federal Deposit Insurance Corporation (FDIC) seizes Washington Mutual, then the nation's largest savings and loan, which had been heavily exposed to subprime mortgage debt. Its assets are transferred to JPMorgan Chase (JPM).

Sept. 28, 2008

The TARP bailout plan stalls in Congress.

Sept. 29, 2008

The Dow declines 774 points (6.98%), at the time the largest point drop in history.

A reworked $700 billion TARP plan, renamed the Emergency Economic Stabilization Act of 2008, passes a bipartisan vote in Congress.

The Dow closes below 10,000 for the first time since 2004.

President Bush announces that he will host an international conference of financial leaders on Nov. 15, 2008.

The Bottom Line

While good intentions were likely the catalyst leading to the decision to expand the subprime mortgage market back in 1999, many repercussions resulted which yielded undesirable impacts to the economy in 2008.

When one considers the growth of the subprime mortgage market along with the investment vehicles creatively derived from it, combined with the explosion of consumer debt, it would be hard to argue that the financial turmoil of 2008 and the ensuing Great Recession could have been minimized or perhaps avoided if more financially responsible policies have been implemented sooner.

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The Fall of the Market in the Fall of 2008

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Mortgage crisis. Credit crisis. Bank collapse. Government bailout. Phrases like these frequently appeared in the headlines throughout the fall of 2008. This period also ranks among the most horrific in U.S. financial market history. Those who lived through these events will likely never forget the turmoil. So what happened, exactly, and why?

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The video begins with another introduction into what market crashes actually mean, before a summary of the Great Crash in 1929. Following this, is a review of the Black Monday Crash of 1987, the biggest single-day decline of stock market values in history. 1987 wasn't caused by a single factor, rather it was a series of factors -- a widening U.S trade deficit, computerization trading, and tension in the Middle East. Between 1999 and 2000 was the Dot-com Bubble, as the value of internet stocks experienced a massive increase, the NASDAQ Composite Index rose exponentially. But in 2002, due to overvalued internet stocks, the value dropped to less than 1,200 points in October of 2002. Following this event was the infamous housing crisis of 2008, and much more recently was the Coronavirus crash in 2020, as both the Dow and S&P 500 dropped by over 10% in late February. Unlike previous crashes, however, the Coronavirus crash recovered quickly, as it had risen once again by May.

I genuinely wasn't aware we had even experienced a market crash in 2020, although it's rather obvious in hindsight. But having learned this, all this tells me is that the government and our economy needs to be better prepared for these types of events. As previously mentioned, it seems to me that short-term gains are all that matter to investors and the big banks, and very little is considered when it may affect the lower class.

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Video #2 - Canadians Losing Confidence in the Market

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Video #2 - Canadians Losing Confidence in the Market

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As they review current financial events including a reverse currency war with references to Japan, below the video are stats pertaining to our own nation's financial issues. As Canada's main index continues to drop, a survey was conducted to evaluate the country's confidence in the market, and 24% of voters are planning to cash out. Ontario is reportedly the least confident in current stock values, while investors in British Columbia still have faith. Towards the end of the video, they discuss the current values of commodities, including energy and gold.

Referencing a term early in the topic, I had never heard of currency wars prior to my research. To further define a currency war, it is "a condition in international affairs where countries seek to gain a trade advantage over other countries by causing the exchange rate of their currency to fall in relation to other currencies".

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Video #3 - Canada's Incoming Housing Market Crash

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Video #3 - Canada's Incoming Housing Market Crash

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The main point being made by RBC economist Robert Haag in this video is the rising cost of homes in Canada, and how it has become increasingly unaffordable due to factors including the sharp spike in property value and interest rates during the pandemic. It's estimated that 60% of our income on average is dedicated solely to home ownership costs, with percentages rising as high as 90% in Vancouver and 80% in the Greater Toronto Area. Fortunately, we can expect this spike to settle at least somewhat by as soon as early 2023, but it would still be a large stretch for average homeowners.

I think most viewers of this video would understand that we're experiencing a sharp increase in the price of home ownership, however I personally thought it was more of a gradual increase -- I was not aware just how heavily the market had actually spiked within the last couple years. Beyond this, it's important for some viewers to understand the large difference in prices depending on your area, as markets like the GTA will be much more expensive than the homes you'd find further north.

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Video #4 - What to Do During a Stock Market Crash

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Video #4 - What to Do During a Stock Market Crash

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In the featured video, we are taught how to budget properly during a period of high market volatility, and that begins with a strategy called "dollar-cost averaging". This means to buy or sell something on a set schedule, regardless of what the market is reflecting. The initial example shared depicts how two different S&P 500 investing techniques gave two different results -- if you had invested a lump sum in January, the value of your investment by June would've dropped by 14.5%. But if you had invested by smaller increments monthly, the price of your investment would have decreased over time, and the overall value of the investment would've only dropped by 7% as of June.

What's most important to remember is that these techniques may not work for everyone -- traders all have their own strategies, and you should pursue whatever works for you. But later in the written version of the article, it also states that you should be open to a second opinion, as any decrease in the value of your stocks can result in self-doubt or bad investing habits.

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This picture was captured during the housing crisis of 2008, depicting several individuals reacting to the sharp decline in stock values. Beyond that, I think it can simply reflect any investor's emotions at the sight of their stocks beginning to dip, and that previously mentioned feeling of self-doubt creeping inwards. But it's important to remember that market fluctuations (perhaps not to this degree) are pretty common, and if you still aren't confident, consider speaking with financial advisors or even just more experienced traders within your immediate relation.

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As you can see, this image depicts an individual selling their own vehicle out of desperation due to the decline of market values during the crash of 1929. Much like the first image, it can represent a trader's knee-jerk reaction to market fluctuations, but I think it also represents the fragility of our economy. Within such a short period of time, this person had gone from investing clearly large amounts of money into stocks, to dealing away their own belongings to stay afloat due to their own aspirations for short-term gratification. It doesn't matter who or what these financial policies affects, as long as it involves a great sum of wealth.

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As a potential market crash in Canada approaches, fool.ca explains what you can expect in the coming months, with stock indexes dropping since their 2021 highs. Due to factors including the war in Europe and sharp inflation, investors are nervous about the inevitable wave. In the article, you'll find some smart business tips to keep in mind when enduring a market crash, as you can still potentially make a profit. The most important thing to remember is to not panic-sell, as stocks will eventually rebound to their stronger values.

I chose this website because much like my first article, it gives some newer readers insight into what a market crash actually entails, and tips on what to do and not to do during these peaks and valleys. Essentially repeating what is written in the third article, fool.ca reminds us to keep past historical events in mind during a crisis -- no matter how sharp the decline, no crash has ever resulted in permanent losses.

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Latest posts by Steven Porrello ( see all)

Last Updated

A stock market crash is a sudden and drastic devaluation of a major stock index, like the S&P/TSX Composite Index. Though it can happen alongside global catastrophes and larger economic crises, a stock market crash is often the result of panicked investors selling shares en masse, causing stock values to plummet by double digits.

With high inflation, a war in Europe, and a supply chain that continues to be clogged, many investors are feeling apprehensive about today's global markets. Stock market indexes in both Canada and the U.S. have had dismal months in 2022 so far, with brief gains in market rallies getting entirely wiped out by larger market sell-offs.

If you're afraid of a stock market crash in the coming months, first, take a step back and breathe. Though crashes can be a stressful experience for a stock investor, they don't have to be disastrous - you can be prepared.

Let's take a closer look at market crashes and find out how you can get yourself ready.

What is a stock market crash?

A stock market crash is a sharp decline in the market value of stocks , one that happens over a single day or week.

A crash is not a correction, which happens when stocks stumble by 10%-20% from a 52-week high over several days, weeks, and months. Nor is it a dip, which is a fall of 5%-10% from high prices and can happen several times in a day.

A crash is more dramatic than either a correction or a dip, and causes the price of stocks in major indexes to snowball into double-digit losses over a very short period of time.

Why would a market crash?

To put it simply, a market may crash because of a combination of bad news and panic.

Here's what usually happens: a catastrophic event - a natural disaster, economic crisis, global pandemic - causes mass panic on the stock exchange. Investors, believing the event will destabilize the financial future of companies, sell their shares to protect themselves from further losses. As more and more investors rush for the emergency exits, supply exceeds demand. This causes prices to nosedive and a crash becomes unavoidable.

A market crash usually comes after a period of sustained growth. When the economy is strong - when unemployment rates are down and traders are feeling optimistic, they'll buy more stocks, driving prices upward. At a certain point, these prices can become inflated or they represent the over-exuberance of investors. At that point, all it takes is one unexpected event to startle traders and cause the mass panic that brings prices way down.

Is the stock market goingto crash?

The simple answer is yes. The stock market will go through another crash. It's not a question of "if," but rather "when." If you invest long enough, you will face a stock market crash, perhaps more than one.

Will that crash happen in 2022? Maybe, maybe not. The Canadian economy is certainly undergoing turbulence, and stock indexes have dropped from their 2021 highs.

Many uncertain events are crushing investors' hopes for the market, such as the war in Ukraine, rampant inflation, supply chain problems, frequent weather disasters, and climate change. The price of gas, food, houses, cars, utilities, and countless consumer products continues to rise, and the Bank of Canada's expected prime rate hikes are making it more expensive to borrow.

Though it's hard to say whether these factors will cause a full-blown market crash, it's certain the market will continue to face ups and downs in the near future.

Is a market crash bad?

Stock market crashes aren't necessarily bad. In fact, you might actually make money in the long run, if you're savvy and level-headed.

Truthfully, a stock market crash is only as bad as your reaction to it. Sure, no one would say a stock market crash is a pleasant experience, but you only lock in losses if you sell your stocks. If you can resist the urge to sell, you can prevent a bad situation from becoming a verifiable loss of wealth.

What should you do when the market crashes?

When a crash does happen, you don't have to throw your hands up and surrender. Here are three ways you can make it through any crash.

1. Refuse to panic-sell

Never, never, never sell stocks out of fear.

Panic-selling is a surefire way to lose money. In fact, selling at prices lower than what you paid is the only way to lose money in the stock market. When you feel the urge to sell, remind yourself that market crashes are typically short-lived and, by staying invested, you'll get the full force of the market recovery.

Before you sell anything, do your research and make an informed decision. Don't let emotion take over.

2. Think long term

Make no mistake - stock market crashes are emotional, stressful and heart-wrenching.

Shifting your thoughts from the here-and-now to the future reminds you that the game isn't over, and you have plenty of time to recover. Turn off the news for a while, resist the urge to check your account balances, and delete your investing apps if you have to.

3. Continue to buy high-quality stocks

Instead of selling, take advantage of the low prices and buy quality stocks. Sure, it's hard to buy stocks in a crash, especially since you'll probably experience more losses in the short term. Those who pull the trigger while the market is choppy will likely see generous returns when the market stabilizes.

One way you can stay informed and make wise investments is to sign up for Stock Advisor , where we provide two new stock picks each month and a members' forum where you can consult with our community of investors during market volatility.

How to prepare for a stock market crash

It's been almost a year since we saw the last stock market crash, which was a heart-wrenching 36% drop in the Toronto Stock Exchange . Analysts are already warning another crash is imminent. That can seem a little terrifying, not to mention discouraging, especially if you're finally picking yourself up after a year riddled with emotional lows.

The reality, however, is no one knows when the market will crash again, no matter what their market analysis says. Nor does it really matter for most investors. You don't have to know when the next stock market crash will happen to be prepared. Do these things right now and you won't feel sucker-punched when a crash happens.

1. Build an emergency fund

An emergency fund gives you peace of mind when the going gets rough and it helps you resist the urge to sell stocks and stockpile funds. You should aim to have at least three months' worth of liquid cash in a secure account.

Note: this isn't money tucked away in investments or growth-oriented accounts with limited withdrawal access, such as annuities or CDs. Your emergency fund is a stockpile of liquid cash that you can access fast.

2. Rebalance your portfolio

When you rebalance your portfolio, you buy or sell stocks to maintain asset allocation, which is a fancy way of saying you're balancing risks with rewards.

For example, let's say you want 65% in stocks and 35% in bonds (this asset allocation would be a less aggressive strategy). Let's further say stocks go up and your allocation to them rises to 82%. Given the risks of market volatility, you may not be comfortable having that much in stocks.

So, to rebalance, you sell stocks until you're back to 65%.

3. Make a stock wish list

Which stocks would you want to add to your portfolio if their prices weren't so high? Start making a list now. Put aside extra cash and when prices are low, see if your dream stocks are affordable.

Similarly, now's a good time to sell stocks you don't want anymore. Some companies in your portfolio may have lost their competitive edge, or you may have too many stocks in one industry. Either way, take a close look at your stock portfolio and see what you can sell right now before the market dives.

4. Don't worry about timing the market

When you time the market, you buy stocks when prices are low and sell them when prices are high. Sounds smart, right?

Truthfully, it's nearly impossible to time the market correctly and you may find yourself locking in losses and missing out on gains. Instead of trying to time the market, invest consistently. Keeping a long-term perspective and staying invested day-in, day-out, is hands down the best strategy for building wealth .

5. Don't buy stocks on margin

Buying on margin is an investing strategy that involves borrowing money from a bank or broker to buy stocks. Margin investors will typically combine their own money with a margin loan to buy more shares than they otherwise could. If the stock they buy performs well, these investors can sell their position, repay their broker (plus interest), then pocket whatever profit is left.

During a market crash, margin investors are often the biggest losers. Not only can they lose their own investment, but they also risk defaulting on their loans. In fact, margin investing was the primary cause of the 1929 Great Depression, during which banks loaned too much money to investors, who in turn could not pay back their loans when stock prices crashed.

Margin investing is risky, but it's especially precarious during turbulent markets, such as the one we're experiencing now. Even if you're experienced with buying on margin, think twice before you start borrowing money to buy stocks in 2022.

6. Keep an historic perspective

Lastly, remember: every market crash has a market rebound. No matter how low it dips, the market will recover. No stock market crash has ever, ever resulted in permanent losses. As our buddy Heraclitus said, the only constant in life is change. And yes, that change can be upward.

How to take advantage of a stock market crash

Savvy investors can take advantage of market crashes by holding on to quality investments and continuing to buy more stock (or more shares of stock you already own).

One tactic to employ during market crashes is dollar-cost averaging. When you dollar-cost average, you invest a regular sum periodically.

For example, your employer may set aside 5% of your biweekly paycheque into a group , or you could manually deposit $1,000 into your brokerage account every month. Both of these are dollar-cost averaging, as you're investing a fixed amount at regular intervals.

During market crashes, your fixed amount (say, the $1,000) can buy more shares of stock than during the heights of bull markets . For instance, if Stock A cost an average of $500 per share last May, then $1,000 could have bought two shares for the month. If that same stock lost 50% of its value in May this year, then your $1,000 can now buy four shares. That's the beauty of dollar-cost averaging: without changing your investment contribution, you can buy more stock.

You might even want to increase the amount you're investing during market crashes. While that might feel counterintuitive (after all, you'll likely see a dip in stock price), you could end up owning more shares of a high-quality stock at a lower cost. Then, when the market rebounds, those same shares could produce some handsome returns.

When will the market recover?

There's no way to predict when the market will recover. But we can say this - market crashes are always followed by strong market rebounds. It could take a few months, perhaps even a year, before investors become confident again. But a recovery is bound to happen. And individual investors who stay invested - who continuebuying - will be the ones who benefit when it does.

This article contains general educational content only and does not take into account your personal financial situation. Before investing, your individual circumstances should be considered, and you may need to seek independent financial advice.

To the best of our knowledge, all information in this article is accurate as of time of posting. In our educational articles, a "top stock" is always defined by the largest market cap at the time of last update. On this page, neither the author nor The Motley Fool have chosen a "top stock" by personal opinion.

As always, remember that when investing, the value of your investment may rise or fall, and your capital is at risk.

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Stock Market Crash: How to Handle a Market Pullback in Canada

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As discouraging as a stock market crash can be, it doesn't have to knock the wind out of you. You can be prepared for a market pullback.