When: Monday, Oct. 19, 1987

Why: PANIC! Wall Street melted down, giving into fear in response to major world events. A U.S. attack on an Iranian oil platform caused a massive panic, with fear driving many to sell ASAP. Markets crashed soon after.⁶

The Losses: The Dow dropped ~22.6%, falling 508 points. That’s roughly the same as a 7,000-point freefall in today’s markets.⁷

When: ~1995 to ~2002, with a peak on March 10, 2000, and a crash on Oct. 4, 2002

Why: Extreme optimism in the early Internet age sparked overconfidence, widespread speculation, and overvaluations. Folks gave into GREED, rushing to invest in companies and concepts before they had proven models or finished products. Some didn’t even have business plans. That lasted for years until the bubble burst in late 2002, as investment dollars dried up and many tech companies went under. When the bubble burst, greed turned into FEAR as investors rushed to get out.⁸

The Losses: The Nasdaq fell nearly 77%, dropping from roughly 5,132.52 (in March 2000) to 1,139.90 by Oct. 2002. Tech companies that didn’t go under saw their values decline by as much as 80%.⁸ All said and done, the burst of the dotcom bubble resulted in losses of around $5 trillion.⁹

When: 2007 to 2009

Why: Cheap credit and new banking laws ushered in a new era of GREED, along with a sharp rise in subprime mortgages. That created a new “housing bubble” that ballooned as banks, insurance companies, and others merged into “too-big-to-fail” entities. The bubble burst, however, with greed once again turning into fear, as many rushed to get out fast, losing BIG in the process. When interest rates rose, borrowers defaulted and housing prices plummeted. That set off a cycle of FEAR and painful losses for hedge funds, lenders, and many others.¹⁰

The Losses: U.S. households lost ~26% of their net worth or roughly $17 trillion in inflation-adjusted terms. Roughly 7.5 million jobs were lost in a matter of two years. A decade after this crisis, experts say the economy shrunk by ~7%, translating to about $70,000 per American.¹⁰

When: May 6, 2010

Why: The market was highly volatile, starting low and tumbling with Greek market fluctuations and elections in the UK. The market took a nosedive, however, with a massive automatic sell order.¹¹ That caused PANIC and a near-contagious level of fear, with rumors of cyberattacks rampant. By the end of the day, the markets recovered about half of the total value lost.¹²

The Losses: About $1 trillion in market value disappeared in the 2010 Flash Crash.¹¹ During the height of the Flash Crash, approximately $56 billion traded hands in merely 20 minutes.¹²

When: ~2020 to ~2022

Why: Crypto has been through a couple of bubbles and busts. The most recent one happened during the pandemic, with GREED gripping many folks out of work and bored at home. That’s when optimism and crypto GREED was high, with many rushing to buy the newest blockchain assets available, including nonfungible tokens (NFTs). Some of these assets appreciated by 20 to 40 times their original value, stoking investor GREED. But it didn’t last. Rising interest rates, inflation, and world events, like the war in Ukraine, soon turned that greed into fear. That fear led into a crypto crash in late 2022, with incredible losses to follow. Once again, greed, fear, and panic caused sharp losses for many.¹³

The Losses: An estimated $2 trillion was lost so far in the most recent crypto crash. Most of that disappeared in about 6 months.¹³

Let's look at a simple example: Someone invests a lump sum of $10,000 in the S&P 500 in January 1987. Assuming an average annual return of 10.11% over the next 35 years, that $10,000 lump sum would have grown to about $320,694 by the end of 2022.¹⁴

That's a total return of over 3,100% on the initial $10,000 investment.¹⁴

Takeaway: This shows the significant compound growth possible from a lump sum investment left untouched for decades. Of course, staying invested through many ups and downs requires patience and discipline. But the long-term rewards can be substantial with a buy-and-hold approach.

Consider the following investment approach: Investing $500 per month in the S&P 500 from 1987 through 2022.

That's a total investment of $210,000 over 35 years.

Assuming an average annual return of 10.11%, those monthly $500 contributions would have grown to around $1.7 million by the end of 2022.¹⁵

That's a cumulative return of over 700% on the total $210,000 invested over decades.¹⁵

Takeaway: This example illustrates the power of consistent investing over long time periods. By sticking to a regular contribution plan, one can potentially build substantial wealth through compounding growth, even if investing relatively small amounts. The key is to stay disciplined and keep investing through ups and downs.