When Markets Crash: What Actually Happens and What to Do

No one can promise that your fund will fall by a particular percentage, or recover by a particular date. Investments can lose value, sometimes permanently. A market decline is a reason to review the risk you actually hold, your spending needs and your plan, not to follow an unconditional instruction to buy, hold or sell.

An earlier version of this guide described a 30% fall as a promise and treated recovery too confidently. Those claims were not justified. Historical market behaviour does not establish the next outcome for your portfolio, especially after fees, inflation and withdrawals.

A market index is not your personal investment result

A headline normally describes a particular index over a particular period. Your fund may hold different assets, use another currency, include bonds or cash, and charge fees. Your personal result also depends on when you contributed or withdrew. A national stock-market headline cannot by itself tell you what happened to your pension or ISA.

Before acting, identify the fund and share class, what it owns, the period being compared, and whether the displayed return includes income. Separate a change in price from money you added or removed. This basic record can make a conversation with your provider or adviser much more useful.

Recovery maths: a loss and a gain are not symmetrical

If £10,000 falls by 30%, it becomes £7,000. Returning from £7,000 to £10,000 needs a gain of about 42.86%, not 30%. The percentage gain uses the smaller starting amount. This is arithmetic, not a prediction that either move will happen.

Illustrative fall	£10,000 becomes	Gain needed to regain £10,000
10%	£9,000	11.11%
20%	£8,000	25%
30%	£7,000	42.86%
50%	£5,000	100%

These examples ignore fees, tax, inflation and cash flows. Recovering the same number of pounds after several years would not necessarily restore the same purchasing power. A lower price also does not prove an investment is undervalued: its underlying prospects may have deteriorated.

Diversification helps manage risk; it does not remove it

The FCA explains diversification as spreading exposure across investments and markets. One unsuccessful holding then has less influence on the whole portfolio. But several assets can fall together, and diversification cannot guarantee that you avoid a loss.

Look through fund names to the holdings where possible. Owning several funds that all concentrate on the same companies may not provide the spread you expect. Our diversification guide explains the concepts; it does not determine the right allocation for your circumstances.

Check whether the original plan still fits

The FCA's risk-and-return guidance emphasises time horizon, loss tolerance and your overall finances. A longer period can provide more opportunity to ride out fluctuations, but five years is not a guarantee of profit or a deadline for recovery.

• Has the date when you need this money changed?
• Do you have accessible cash for essential spending and emergencies?
• Is the risk concentrated in a company, sector or country?
• Do you understand the product and any borrowing or leverage involved?
• Are you withdrawing regularly, rather than accumulating?

Someone drawing money for living costs faces different choices from someone adding small amounts for a distant goal. Do not copy another investor's actions merely because both portfolios show the same percentage fall.

A useful review note, not a trading instruction

Write down the goal, expected spending date, accessible reserve, current holdings, fees and what has actually changed. Distinguish a change in personal circumstances from a response to a headline. If you have an agreed investment plan, compare the current situation with its review triggers.

Selling crystallises a transaction result, but an unsold fall is still a reduction in the portfolio's current value. Holding is not automatically safe; selling is not automatically wrong. The relevant question is whether the remaining risk fits your needs. A regulated adviser can help where retirement withdrawals, large sums or a changed financial position make the decision difficult.

The FCA's questions before investing include understanding risks, access to money and the firm involved. Do not respond to a downturn by moving into an unfamiliar “guaranteed recovery” product, or assume that regulation protects against normal investment losses.

What this page cannot tell you

It cannot identify the bottom, forecast your fund's return or choose a trade for you. Its purpose is to replace a dramatic prediction with a clear record of the decisions that need reviewing. Keep the distinction between an arithmetic example, an observation about the past and a claim about the future.

Source-led revision: 4 September 2026. General education, not personalised financial advice. Investments can fall as well as rise; you may get back less than you invest. Past performance is not a reliable guide to future results.