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Key Takeaways Stock market contractions are inevitable — the S&P 500 has fallen more than 10% on 25 separate occasions over the past 50 years — and they ripple through every business by shaking customer, employee, and investor confidence.
Business owners can prepare now by diversifying investments, building cash reserves, securing lines of credit, and working with a wealth manager, rather than scrambling once the downturn hits.
As I write this, both the S&P 500 and the Dow Jones Industrial Average are up over 12% since the beginning of the year and more than 20% over the past 12 months. It’s boom times in the markets. But make no mistake: sooner or later, there is going to be another significant stock market contraction. History guarantees that much. What history doesn’t tell us is when.
Over the past 50 years, the S&P 500 has fallen more than 10% on 25 separate occasions and more than 20% six times. People overbuy, overvalue and overextend themselves. It’s just human nature. This time will be no different. Back in the day, there were banking, internet, real estate, junk bonds, recession, inflation, energy and war crisis which caused stock market contractions. Today, there are many of the same factors, with the addition of crypto, terror attacks, AI and data center over-investment. All, most or any of these factors will contribute to the next contraction.
No matter how much you may want to deny it, the stock market has an enormous impact on your business. Customers delay purchases, banks tighten lending standards, investors become more cautious, employees get nervous about their 401(k)s, owners see their personal net worth decline, vendors become more aggressive about collections, hiring gets postponed and capital spending is curtailed.
If you’re like most business owners, you’ve got your company, personal, retirement and college fund savings invested in the markets. So do your employees. So does everyone else. When the markets drop, it causes a collapse in confidence in the economy. People feel less wealthy, and they get scared. The impact reverberates. Economics is not a science. It’s an art. It’s psychology. It’s emotions and feelings and confidence and moods. When there’s a blow to all or any of those factors, the impact is felt throughout.
This will happen. So, as a business owner, what should you do to protect yourself? Here’s what I’ve learned over the past 30-plus years living through a number of stock market contractions.
For starters, pay attention to history
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