compoundsimHow Long Does the Stock Market Take to Recover From a Crash?
The S&P 500's worst crashes since 1993, the months each took to recover, how world and Nasdaq stocks fared, and how much sooner a monthly plan got back.
Published
The S&P 500's worst crashes since 1993, the months each took to recover, how world and Nasdaq stocks fared, and how much sooner a monthly plan got back.
Published
Since 1993 the S&P 500's deepest fall in US dollars, with dividends reinvested, was -51%, and the longest it took to get back to a previous high was 75 months. Someone who kept investing the same amount every month through the fall got back to the money they had put in (their principal) much sooner. A plan started in the month of the 2007 high was back to its principal after 35 months, sooner than the 53 months a lump sum bought at that high needed to get back to it. Both are history: they say nothing certain about how deep or long the next crash will be.
Here a fall is the furthest the value dropped below its previous high. This distance below the running high is called a drawdown. The figures use the month-end values of SPY, an ETF that tracks the S&P 500, with every dividend reinvested.
| Crash | Fall | High to bottom | Bottom to high | Total |
|---|---|---|---|---|
| Dot-com bust (2000-2002) | -45% | 25 months | 50 months | 75 months |
| Global financial crisis (2007-2009) | -51% | 16 months | 37 months | 53 months |
| COVID crash (2020) | -19% | 3 months | 4 months | 7 months |
| 2022 rate hikes | -24% | 9 months | 15 months | 24 months |
In every one of these crashes, the climb back from the bottom took longer than the fall to it. In the financial crisis the S&P 500 lost about half its value in 16 months and then needed 37 more to recover: $10,000 became about half that, and it took 53 months in all to be worth $10,000 again. The deeper the fall, the bigger the rise needed to undo it, since something that halves has to double to get back. Depth alone does not decide how long that takes, though. The dot-com bust was shallower than the financial crisis yet took longer to recover from, partly because the fall itself lasted longer and partly because prices rose more slowly after its bottom.
The COVID crash, by contrast, fell and recovered within a few months. Crashes differ widely in length, and when one starts there is no telling which kind it will be.
All of these figures are in US dollars. Counted in your own currency, the exchange rate moves on top of the index, so a fall can be deeper or shallower and the time back to the high longer or shorter. On the S&P 500 index data page you can switch the currency and see the drawdown chart in your own.
The same crash went deeper and lasted longer in some markets than in others.
Each crash: months falling and months recovering (dividends included, US dollars)
High to bottomBottom to high
Even for the S&P 500 alone, the answer to "how long does recovery take" runs from 7 to 75 months depending on which of these crashes you look at. The worst cases are most useful as a test of whether you could keep holding if your money went through the same.
The recovery times so far are for a lump sum bought at the month-end high and held. Someone investing the same amount every month had a different experience, because what they bought during the fall gained in the recovery.
The table follows a plan putting the same amount into the S&P 500 each month: how far its balance fell below the money put in so far (its principal) at worst, and how many months after the high it was back to its principal, in US dollars. A balance can get back to its principal and then dip below it again, so the count runs to the month from which it stayed at or above it during that fall.
| Crash | Plan started | Deepest fall below principal | Months back to principal | For comparison: lump sum back to the high |
|---|---|---|---|---|
| Dot-com bust | in the month of the high | -28% | 38 | 75 |
| Dot-com bust | 5 years before the high | -12% | 32 | 75 |
| Financial crisis | in the month of the high | -35% | 35 | 53 |
| Financial crisis | 10 years before the high | -30% | 23 | 53 |
A plan started at the high got back to its principal much sooner than the lump sum got back to its high. The first months' money fell a long way, but what went in on the way down and near the bottom gained strongly in the recovery and pulled the whole balance up. Plans started years earlier were back to their principal sooner than the lump sum too. In the COVID crash and in 2022, a plan started five years before the high never fell below its principal during the fall: the gains built up before it absorbed the loss.
Back to principal is not back to the previous peak balance, though. These figures measure the time until the balance equalled the money put in, not until it regained the gains made before the crash. The longer a plan has run and the bigger its balance, the smaller each month's addition is beside it, and the more its balance behaves like a lump sum. And getting back is not permanent: the plan started at the 2000 high fell below its principal again in the 2008-09 crash.
Monthly investing softens a crash because it keeps buying at lower prices. That does not mean it ends with more than putting the same money in at the start; that comparison, with the range of returns by holding period, is in lump sum vs dollar-cost averaging.
To see the range of falls a future could hold, the Monte Carlo simulator draws 1,000 paths (possible futures) from a model fitted to this history and shows each one's max drawdown of the plan's balance and the chance of a fall of a given size. The model's wild regime, its turbulent spells with bigger swings, lasts 3.4 months on average, so falls that run for years, like the dot-com bust, tend to come up less often than in history. How the simulation works is explained in how Monte Carlo simulation works for investing, and how a mix of stocks and bonds changes the depth of a fall in does diversification work in a crash?.