5 strategies for estate planning to get you started protecting your family and funds

estate plan
Many parts of a good estate plan can and should be set up sooner rather than later, to ensure the smooth transfer of your money and property to your heirs after your death.

  • An estate plan is important for everyone, regardless of income, to ensure your assets are distributed smoothly, fairly, and tax-efficiently to heirs.
  • Two immediate estate-planning strategies to do include naming beneficiaries for retirement accounts and powers-of-attorney if you’re incapacitated and unable to make decisions.
  • Other estate-planning strategies include establishing trusts and lifetime gifts to avoid or diminish estate taxes.
  • Visit Business Insider’s Investing Reference library for more stories.

You may think estate planning is just for the wealthy. Affluent people have more assets, true. But they aren’t the only ones who benefit from thinking about what they will pass on to their loved ones and how to make that transfer as smooth as possible.

Without an estate plan, it can be more difficult, time-consuming, and expensive for heirs to handle your financial accounts, property, and other assets, making sure everything is distributed in the way you wanted it. 

Making a will is a good first step. But an “estate plan” – really just a fancy term for getting your affairs in order – goes beyond that. It not only communicates your wishes, it organizes your finances to ensure that your estate – essentially, everything of value that you own – is handled as fairly and tax-efficiently as possible. 

Estate planning doesn’t just involve what happens after death, either. It can also cover a situation in which you are severely incapacitated, either physically or mentally, and unable to make decisions.

Here are five estate-planning strategies and key moves to keep in mind for your funds and your family. 

1. Select key players to carry out your estate plan

If you’ve drawn up a will, you’ve named an executor to it. But an important part of your estate planning process is deciding who will help you fulfill your wishes potentially while you are still living, as well as after death. These roles include appointing a:

  • Durable power of attorney (POA). This person steps in to make financial decisions on your behalf if you are temporarily or permanently unable to make those decisions independently. 

  • Health care power of attorney. This person steps in to make medical decisions on your behalf if you are temporarily or permanently unable to make those decisions yourself. It can be the same individual as the regular POA, or a different person.

  • Guardian. If you have minor children when you pass away, the guardian will raise your children and make decisions about where they live, go to school, and other activities.

Carefully consider who you want in each role and discuss it with them to ensure they are willing and able to step into the role when needed. Then have a document officially naming them drafted, signed, and notarized. 

2. Select or review the beneficiaries on your retirement accounts

The bulk of many people’s holdings are in retirement accounts, like 401(k) plans and IRAs. A beneficiary is a person (or persons) who inherits the money in the account after your death. 

Naming a beneficiary might seem like a formality. It’s not. 

It’s a legal designation that directs the account’s custodian/administrator (the financial firm holding or managing it) how to release the funds. Part of the contract between you and the custodian, your beneficiary designation trumps anything or anyone named in your will. So selecting your beneficiary is important.

You may well have named a beneficiary when you established your account – it’s usually part of the paperwork. But it pays to review it, and update any time you have a major life event, such as a marriage, divorce, or death in the family. If you leave as a beneficiary a now-ex-spouse, your heirs will have a major battle to stop the funds from going to them, and they’ll still probably lose.

If you don’t have any living beneficiaries named when you die, your retirement account can wind up in probate court, and the court will decide how to distribute it – a messy, time-consuming procedure. 

3. Familiarize yourself with the federal and state “death taxes”

The federal estate tax impacts a very small (and wealthy) segment of the population, but it’s still a good idea to familiarize yourself with it – especially since the regulations are changing in the not-too-distant future.

When someone dies, the federal government imposes a tax on their estate’s value. In the eyes of the IRS, the estate includes all the cash, real estate, investments, business interests, and other assets owned by the deceased person when they passed away. The tax applies to, and is paid by, the estate – not those who inherit it.

The estate tax only kicks in for estates of a certain size – above a certain exemption amount, in IRS-speak.

For 2021, the federal estate tax exemption is $11.7 million per individual estate ($23.4 million for a married couple’s, if they die together). However, the current exemption expires on Jan. 1, 2026. At that point, it will revert to its pre-2018 level of $5 million for individual estates ($10 million for married couples), adjusted for inflation. 

It still sounds like a lot, but bear in mind that an estate encompasses all your assets. If you’ve a business to bequeath, a six-figure life insurance policy, or property that’s appreciated a lot, your taxable estate could well hit that $5 million.

In addition to the federal estate tax, 12 states and the District of Columbia impose an estate tax.

Six states also impose an inheritance tax, which directly taxes heirs rather than the estate. So it’s a good idea to familiarize yourself with the estate or inheritance tax laws and exemptions in any state where you live or own property.

4. Take advantage of the annual gift tax exemption

One way to avoid the estate tax when you die is to give away money while you’re living.

The annual gift tax exclusion allows you to give up to $15,000 per person per year free of  – no need to report the gift. Married couples can give $15,000 each, meaning together they can give a total of $30,000 per person per year.

If you give more than that amount, you don’t necessarily have to pay taxes on those gifts, but you do have to file a federal gift tax return. Also, those gifts count toward your lifetime estate exemption limit. For example, if you give someone a $30,000 gift, your lifetime exemption amount would be $15,000 lower because that’s how much of your gift exceeds the annual exclusion. 

If you want to make a bigger gift, you can contribute up to $75,000 to a 529 college savings plan in one year and elect to treat it as if you made it over five years.

Other ways you can give money to loved ones without triggering the gift tax include:

  • Gifts to your spouse (capped at $159,000 in 2021 if your spouse is not a US citizen)
  • Tuition payments made directly to the educational institution
  • Medical expenses paid directly to the medical facility

5. Establish a trust

Another way to pass wealth smoothly to your heirs and bypass taxes is to establish a trust. Tailored to meet different estate planning needs or goals, the major types of trusts include:

  • Revocable trust: A revocable trust, aka a living trust, can be altered or canceled at any time. When you put your assets in a revocable trust, you get to keep any income they earn, and control over them. After your death, assets transfer directly to the beneficiaries you name in the trust – they won’t have to go through probate, as they would if bequeathed in a will. They will count as part of your taxable estate, however.
  • Irrevocable trust: An irrevocable trust works the same as a revocable one, but it can’t be modified or terminated without the permission of your beneficiaries. After transferring assets into the trust, they are no longer part of your estate, so they won’t be subject to estate tax.
  • Grantor retained annuity trust (GRAT): If you own stock that you expect to increase in value, you can put it in a grantor retained annuity trust. This gives you the right to receive an annuity over the trust’s term, typically two to five years. After that, the stocks in the trust are distributed tax-free to your beneficiaries. However, if you die during the GRAT term, the assets are still included in your estate.
  • Irrevocable life insurance trust (ILIT): You fund an ILIT with a life insurance policy, and the trust is both the owner and beneficiary of the policy. When you die, the trust collects the policy’s death benefit and pays it out to your beneficiaries. Life insurance benefits are always free of income tax; putting them in a trust also effectively frees them from counting towards estate taxes as well.
  • Charitable remainder trust (CRT): A charitable remainder trust allows you to get a partial tax deduction for contributions to the trust. While you’re living, you can receive income from the trust. At the end of the trust’s term, any remaining trust assets are distributed to one or more charities or non-profit organizations that you name.

The financial takeaway

Some estate-planning strategies are simple to execute. Others, such as establishing trusts, need to be done carefully and precisely – with the help of a trusts-and-estate attorney or another financial professional.

The important thing is to get started now. And remember: Estate planning isn’t a one-and-done proposition. The decisions you make this year may not meet your situation five years from now. 

Even if your life or finances haven’t federal and state laws and exemption amounts do. That’s why it’s important to review your estate plan regularly. 

Related Coverage in Investing:

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Opening a Roth IRA for your kids offers investment options, tax-free growth, and a great lesson in how to save

Father-son financial advisors find too many people have a blind spot around estate planning, and they use 2 strategies to break through

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What is the Nasdaq? Understanding the global stock exchange that’s home to the fastest-growing, most innovative companies

nasdaq index
The Nasdaq has a headquarters in New York City, though it’s actually an electronic stock exchange.

  • The Nasdaq is the world’s largest electronic stock exchange with two closely watched indexes: the Nasdaq Composite and the Nasdaq 100.
  • Technology, consumer services, and other growth stocks dominate Nasdaq and have caused it to outperform other stock markets in recent years. 
  • The easiest way for individual investors to participate in the Nasdaq’s volatile but high-performing stocks is via index funds.
  • Visit Business Insider’s Investing Reference library for more stories.

The Nasdaq is the largest and oldest electronic stock market in the world, meaning all of its buying and selling happens electronically, rather than on a physical trading floor. Short for National Association of Securities Dealers Automated Quotations, the Nasdaq is the second-largest stock exchange globally based on the market capitalization  of its listed companies – exceeded only by the New York Stock Exchange (NYSE). 

A pioneer in online operations when it launched in 1971, the Nasdaq provided a listing service for companies that had previously only traded over-the-counter (OTC). It quickly became the home for many new and innovative high-tech startups, including Microsoft and Apple.

Today, the Nasdaq plays an important role in the US and global economy, with its two major indexes – the Nasdaq Composite and the Nasdaq 100 – closely watched barometers of business.

To help you make sense of it all, here’s what you need to know about the Nasdaq, from what it is to smart strategies for investing. 

What is the Nasdaq?

The Nasdaq is technically a dealer market where both buyers and sellers trade with a market maker in a particular stock or security, unlike an auction market (like the NYSE) where buyers and sellers trade with each other through a broker.

Nasdaq fast facts

  • 3,889 listed companies trade on Nasdaq.
  • Nasdaq’s listed companies are collectively worth $11.23 trillion. 
  • Over 4.5 billion shares are traded daily on Nasdaq.
  • To be listed on Nasdaq, companies pay $47,000 to $163,000 in fees. 

Nasdaq’s 3,889 listed companies represent 10 broad sectors or industry groups. Most are in the fields of technology, consumer services, and health care. 

While Nasdaq has plenty of giant corporations, such as PepsiCo., PayPal, and Amazon, its stocks tend to be more growth-oriented, and less blue-chip, than those on the NYSE. Nasdaq equities have a reputation for innovation, disruption – and volatility

History of the Nasdaq

The Nasdaq was created in 1971 by the then-National Association of Securities Dealers (currently known as FINRA). Originally, it was just a quotation system – an electronic ticker of bid and ask prices – but it began adding trading and transactional systems.

  • In 2002, Nasdaq became a fully independent, publicly traded company. 
  • In 2006, it became an SEC-registered national securities exchange.
  • In 2007, it combined with the Scandinavian exchange group OMX to become the Nasdaq OMX group. 

The Nasdaq does not have, and has never had, a physical trading floor. This became a problem for the exchange in 1995 as major companies such as Microsoft threatened to leave. No trading floor meant no physical presence, no opening bell ceremony, and, more importantly, no place for media networks to broadcast from during the trading day. 

That problem was solved in 2000 with the construction of a massive 10-story tall tower at the corner of 43rd and Broadway in New York City, known as MarketSite, complete with video screens, a full television studio, and, yes, an opening bell ceremony. But the actual trading remains electronic.

It’s a bit ironic: Nasdaq, which began as an all-electronic exchange, had to create a physical presence to gain credibility with Wall Street. But eventually, the NYSE and other older, established exchanges, discovered the need for an electronic component in order to stay competitive in a rapidly evolving marketplace. 

The Nasdaq has two major indexes 

Nasdaq isn’t just a stock exchange. It also has two highly regarded indexes that track the performance of Nasdaq stocks daily: 

  • The Nasdaq Composite index tracks 2,790 Nasdaq securities – basically, everything but mutual funds, preferred stocks, and derivative securities. The Nasdaq is heavily weighted with technology stocks making it the ‘de facto’ bellwether for the tech sector.
  • The smaller Nasdaq 100 index focuses on the largest, non-financial companies listed on the Nasdaq. Over half of them are in the tech sector.   

Of the two, the Nasdaq Composite is the more influential. When commentators refer to “the Nasdaq closing up five points,” it’s usually the Composite they mean.

While the Composite index is more widely followed, the Nasdaq 100 is viewed by traders and investors interested in futures, options, and exchange-traded funds.

Calculating the Nasdaq indexes daily average

Both the Nasdaq Composite and Nasdaq 100 use the same modified market capitalization weighting method in which the closing price of each share (LSP) is multiplied by the total shares outstanding (TSO) for that company to arrive at that stock’s market capitalization.

Share weights are calculated by dividing each security’s market capitalization by the total capitalization of all index securities. Share weights for each stock are then multiplied by that stock’s closing price and the total divided by an index divisor that accounts for market fluctuations such as stock splits, mergers, and other actions. The result is the Nasdaq average for that day.

Performance of the Nasdaq indexes

Nasdaq stocks have led the charge of the long-running bull market the US has seen in the 2010s.  Its indexes have dramatically outperformed the S&P 500 (which tracks large-cap stocks), and the Dow Jones Industrial Index (the 30 largest US companies), two other stand-ins for the stock market overall. 

The explanation? Since both Nasdaq indexes lean heavily into tech, consumer services, and health care – all top-performing industries in recent years.

How to invest in Nasdaq stocks

You can always try to duplicate the Nasdaq 100 or the Nasdaq Composite yourself, with individual stock purchases. But it probably would be more efficient to invest in an index fund that tracks the market’s indexes. Many of them, naturally, trade on the Nasdaq. 

  • One of the most popular Nasdaq index funds is the Invesco Unit Investment Trust QQQ ETF (QQQ) which tracks the Nasdaq 100. 
  • To invest in the entire Nasdaq composite, Fidelity’s Nasdaq Composite Index ETF (ONEQ) is a popular exchange-traded fund. 
  • If you prefer a mutual fund, the Fidelity Nasdaq Composite Index Fund (FNCMX) is a well-established vehicle.

In addition to being a stock market, the Nasdaq is a public company and you can invest in it, too. It trades as Nasdaq Inc. (NDAQ). But remember, you are investing in the company itself – not in the stocks listed on its exchange.

The financial takeaway

The Nasdaq made history by being the first electronic stock market. Today, as the second-largest major stock exchange, the stock exchange reflects market movement in tech and high growth companies. The Nasdaq, and its indexes, are highly watched by those who invest in those types of securities.

Investing in the Nasdaq or Nasdaq stocks is, by definition, riskier and more volatile than investing in the NYSE or DJIA, both of which rely on more established, less volatile stocks. But that also means potentially higher returns. 

Weighted towards growth stocks, Nasdaq indexes have outperformed others. And investing in Nasdaq-tracking mutual funds or ETFs give investors an easy, efficient way to take advantage with less risk.

Related Coverage in Investing:

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A guide to stock market indexes: What they measure and how they can guide your investing

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Equity crowdfunding is a way individuals can invest in private, promising young companies

equity crowdfunding
Equity crowdfunding platforms let individual investors provide seed money to startups and small businesses.

  • Equity crowdfunding is a financing method that allows investors to buy stock in young, private businesses, via online platforms.
  • Equity crowdfunding gives business owners a method of raising money, an alternative to costly bank loans or venture capitalists’ funding.
  • While equity crowdfunding offerings are open to any investor, how much you can invest depends on your net worth and annual income.
  • Visit Business Insider’s Investing Reference library for more stories.

Used to be only the wealthy could invest in startups and early-stage companies. But not anymore. 

Throughout the 2010s, a series of laws has opened up the field, making it easier both for small, private businesses to raise capital, and for ordinary individuals to provide that capital.

This legislation has created a new type of investment mechanism: equity crowdfunding.

Like other crowdfunding methods, equity crowdfunding involves harnessing the power of the internet to raise money. But unlike the rewards-based crowdfunding model, where people get perks for backing the presale of a project or venture, equity crowdfunding allows individuals to get equity – an ownership stake – in a company. 

Equity crowdfunding can be easy to do, but it’s important to understand all its ins and outs.

What is equity crowdfunding?

Equity crowdfunding is a method of raising capital for a business venture through the internet, where in exchange of backing the company, investors receive a stake in the company proportionate to their investment. 

To fully get what equity crowdfunding is, it helps to understand what it isn’t.

First, online equity crowdfunding platforms aren’t like their better-known crowdfunding cousins, such as Kickstarter and IndieGoGo, in which sizable numbers of people give money to interesting projects in return for a free product, gift or another reward (as well as the satisfaction of supporting a worthwhile endeavor). 

They also aren’t peer-to-peer lending sites that allow many investors to make small contributions to borrowers who pay the money back with interest.

Instead, equity crowdfunding platforms are all about, well, equity. In exchange for relatively small amounts of money, investors become shareholders of companies raising funds via the platform. Their invested money buys them stock in the new or growing enterprise. Since the companies are private, these aren’t publicly traded shares, but they are an ownership stake, nevertheless. 

Equity crowdfunding takes place via online platforms. But since the selling of securities – the stock shares – is involved, they can’t be just any website. 

Platforms must be operated by a licensed broker-dealer or be registered with the Securities & Exchange Commission (SEC) as a “funding portal.”  A platform must also become a funding portal member of the Financial Industry Regulatory Authority (FINRA), which oversees brokerages.

A brief legislative history

Equity crowdfunding has its roots in the Jumpstart Our Business Startups (JOBS) Act of 2012. The act aimed to loosen the regulatory rules governing what businesses could sell securities. With that in mind, it permitted small companies to raise equity, but avoid the usual costly and onerous process involved in an IPO (initial public offering). 

But the SEC had to finalize some rules before the regulation could really get going. That happened over the course of 2015 and 2016 – the latter with an amendment to the JOBS Act, known as Regulation Crowdfunding. Basically, these new rules allowed companies to sell shares without going public and lightened registration requirements for the equity crowdfunding platforms.

Perhaps most important of all, they also allowed many more people to invest. Previously, you had to be an accredited investor, meaning someone with a net worth of more than $1 million or an income greater than $200,00 per year for two years ($300,000 for married couples). 

Who can invest via equity crowdfunding?

To quote the SEC, anyone can invest in an equity crowdfunding offering. Because of the risks involved, however, you are limited in how much you can invest during any 12-month period. The amount depends on your net worth and annual income, and is calculated on a sliding scale.

For example, if an investor’s annual income or net worth is less than $107,000, then their investment limit is $2,200 or 5% of their annual income or net worth, whichever is greater. If both the annual income and net worth each are equal to or more than $107,000, the max is 10% of the greater of the investor’s income or net worth.

In 2020,  the SEC increased the amount companies can raise annually from equity crowdfunding to $5 million from $1.07 million.

Since the new rules went into effect in 2016, equity regulation crowdfunding has totaled more than $300 million, according to Crowdfund Capital Advisors, with an average raise of $263,719 per company, according to Crowdwise, a crowdfunding information site.

How does equity crowdfunding work?

In terms of online equity crowdfunding platforms, there are many to choose from. While they all provide large numbers of individuals a mechanism for investing in companies, they differ from each other in certain respects. 

Some platforms, such as WeFunder and StartEngine, provide a venue for companies to present their proposals (called “offerings”) but don’t do extensive vetting, leaving it up to the investor to research the firms. Others, like Republic and SeedInvest, present more curated offerings on their platforms. 

In terms of procedure, they all generally work the same way. Investors sign up on the platform’s funding portal site and verify relevant financial information, like their income and assets. Then they can see all the deals available, including the price per share. Next, they make their selection and, depending on the platform, submit their funds.

To track their investment, investors often can view a dashboard online. In addition, you’ll receive an annual report and, in some cases, quarterly updates on the company.

When considering which platform to choose, ask:

  • What’s the focus? Not all platforms list the same types of companies. Certain sites focus on real estate companies, for example, while others list high-growth consumer and retail businesses. 
  • What’s the minimum? Some sites require a minimum investment of $5,000. For others, it might be as little as $100.
  • What’s the team’s experience? You can’t assume the people behind the site have the appropriate experience. Check out the team’s background and make sure it’s right for the type of platform involved.
  • What’s the selection process? Platforms have different approaches to choosing the companies that list on their site. Some are highly selective, while others accept just about anyone. Feel free to ask the platform for backup documents and other relevant information.

What are the benefits of equity crowdfunding? 

Individuals can get a slice of an interesting enterprise with the potential to grow, thereby receiving a share of the company’s success. They also can help a business they’re passionate about to get off the ground or to expand. 

As for companies, they have access to a much wider group of potential investors than they might otherwise have been able to tap, a benefit especially helpful for enterprises eschewed by venture capitalists, angel investors, or traditional financial institutions. 

They also don’t have to register their securities with the SEC, as long as they meet certain other reporting requirements.

What are the risks of equity crowdfunding? 

Equity crowdfunding comes with plenty of pitfalls. For example:

  • Lack of liquidity. When you invest in a publicly traded company, you can unload shares at any time. On the other hand, with crowdfunding – as with most private investments – you’re often stuck with your shares (and in fact are often prohibited from selling in the first year). And it’s likely to be years before you get a return.
  • The potential for fraud. There’s the chance a platform will list unethical ventures looking for an easy buck from unsophisticated investors. To protect yourself, you should do plenty of due diligence before pulling the trigger. Be wary if a company tries to offer you shares directly – all transactions are supposed to go through the platform.
  • Security hacks. Like any online platform, crowdfunding sites may be vulnerable to hackers. That means researching the site’s protections before joining.
  • Lots of risk. Companies are, in many cases, largely unproven ventures. And the failure rate among startups is alarmingly high. Only about half of small businesses survive their fifth year in business, according to Fundera. “Don’t invest anything you can’t afford to lose,” says Brian Belley, founder and CEO of Crowdwise.

The financial takeaway

Equity crowdfunding platforms give regular folks the chance to invest in startups and emerging growth companies, an opportunity that used to be open only to the wealthy.

At the same time, these investments can be risky. Smart investors should conduct careful research into both the platform and the companies they’re considering.

Because investments are highly illiquid and it could be a while before they produce a return, investors need to make sure the money they invest is discretionary.

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Angel investing isn’t just for the wealthy anymore. Here’s how anyone can invest in today’s hot startups through a little-known rule called “crowdfunding equity.”

What is a stock split, and is it a good or bad sign when it happens?

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8 of the biggest stock market crashes in history – and how they changed our financial lives

stock market crash
Stock market crashes, like the one in October 1929, don’t single-handedly cause depressions, but they often expose weaknesses in the economy.

  • Stock market crashes can leave positive legacies in their wake — even though they cause plenty of immediate pain.
  • In the US, stock market crashes led to the creation of the Federal Reserve System, the SEC, and the FDIC.
  • While the triggers for stock market crashes vary, the ultimate outcome is always the same: the market recovers.
  • Visit Business Insider’s homepage for more stories.

Three little words strike more fear into investors’ hearts than anything else: stock market crash.

It’s not just that they mean losses (another word that scares investors). It’s also that no one knows for sure when a stock market crash is going to happen – though the signs were often there in retrospect – or even exactly what it is. There’s no one official definition.

Generally, though a stock market crash is seen as a single trading day in which a stock exchange/market drops by at least 10%. But it can also be “anytime there’s suddenly a lot of volatility that makes you wonder whether the world is coming to an end tomorrow,” says Terry Marsh, a finance professor emeritus at Haas School of Business at the University of California Berkeley.

Here’s the scoop on eight of the most notable stock market crashes in recent financial history, their causes, and their fallout. Unless otherwise noted, they occurred on US exchanges, though the effect often spread to other countries.

1. The Panic of 1907

What happened: A group of investors borrowed money from banks to finance an effort to corner shares of United Copper Company. UCC went bust under the weight of speculation, and then other firms followed: Stocks lost 15% to 20% of their value. Public confidence in banks fell and depositors rushed to withdraw their money, causing ruinous runs. 

The damage: Some banks and stock brokerages failed, and many top executives at surviving financial institutions either resigned or were fired. Businesses couldn’t get bank loans, causing them to fail.

What resulted: “We learned that when more than one financial institution is in trouble,someone must inject liquidity” into the system, says Carola Frydman, a finance professor at Kellogg School of Management at Northwestern University. At the time, private financier J.P. Morgan put together a rescue package that finally restored order on the exchanges. Realizing how economically significant the stock market had become, however, the US government created the Federal Reserve System to formulate monetary policy and provide emergency funds in crises.

2. Black Monday and Tuesday, Oct. 28-29, 1929 

What happened: For nearly a decade, the stock market had kept rising in a speculative spiral. Overproduction in factories and a Roaring 20s giddiness led consumers to take on too much debt and believe financial instruments would climb perpetually higher. Finally, catching on to the overheated situation, seasoned investors began cashing out. Stock prices dropped first on the 24th, briefly rallied – and then went into free fall on Oct. 28-29. The Dow Jones Industrial Average dropped 25% in those days. Ultimately, the market lost 85% of its value. 

The damage: The Crash of 1929 didn’t cause the ensuing Great Depression, but it served as a wake-up call to massive underlying economic problems and exacerbated them. A panicked rush to withdraw money caused overextended banks to fail, depriving depositors of their savings. Deprived of lenders, businesses began to collapse, leading to scarcities of goods. As many as 25% of Americans ended up jobless, spurring foreclosures, migration, and demoralizing poverty. Gross domestic production (GDP) dropped 30%. The economic woe spread overseas, hitting Europe particularly hard. 

What resulted: A slew of reforms and new legislation. They included the Glass Steagall Act of 1933, which separated retail banking from investment banking – and led to the creation of the Federal Deposit Insurance Corporation (FDIC) to insure bank depositor funds. The National Industrial Recovery Act was passed to promote stable growth and fair competition, and the Securities and Exchange Commission (SEC) was established to oversee the stock market and protect investors from fraudulent practices. 

3. Black Monday, October 19, 1987

What happened: Sinking oil prices and US-Iran tensions had turned the market pessimistic. But what led to the wipeout was the relatively new prevalence of computerized trading programs that allowed brokers to place bigger and faster orders. Unfortunately, they also made it difficult to stop trades soon enough once prices started to plummet. Ultimately, The Dow and S&P 500 each dropped more than 20% and Nasdaq lost 11%. International stock exchanges also tumbled.

The damage: Fortunately, the crash didn’t cause a recession or hardship. Trader Blair Hull helped set things right by putting in a large order for options at the Chicago Board Options Exchange on Black Monday. The main casualty of the crash was consumer confidence. It was essentially a computer-IT “plumbing problem” that “scared people,” says Marsh.

What resulted: The financial community realized how stock exchanges around the world were interconnected. The SEC implemented circuit breakers, also known as trading curbs, to halt trading for the day once a stock exchange declines by a given amount. To ensure liquidity, then-Federal Reserve Chairman Alan Greenspan ensured credit was available and made it clear that “the Fed has your back,” says Marc Chandler, a chief market strategist at Bannockburn Global Forex. 

4. Japanese Asset Bubble Burst, 1992

What happened: Japan’s real estate and stock markets had flown to unprecedented heights in the 1980s. At first backed by fundamental economic growth, the spiral had become speculative by the decade’s end. In 1992, the bubble of inflated real estate and stock prices finally burst.

The damage: The Nikkei index fell by nearly half, setting in motion a minor, slow-moving Japanese recession. There were never mass business closures – though “high-end restaurants didn’t do as much business,” says Marsh – but not much growth either. US investors weren’t hurt badly because they typically had only small amounts of Japanese stocks in their portfolios. Japanese investors, however, never fully regained their confidence in the stock market.

What resulted: The Japanese government placed subtle controls on its financial system. “Still, it took decades for the Japanese [stock] market to recover,” says Tyler Muir, an associate professor of finance at UCLA Anderson School of Management. The economy too: In fact, the 1990s are dubbed “The Lost Decade” in Japan. 

5. Asia Financial Crash of 1997 (aka Tom Yum Kung Crisis)

What happened: Under pressure because the country borrowed too many US dollars, Thailand saw its baht currency collapse on July 2, 1997, declining 20% in value, and spurring debt and defaults that sent a ripple effect throughout several Asian financial systems.

The damage: Currency in other Asian countries, including Malaysia and Indonesia, tumbled as well. “In South Korea, women were giving the government their gold rings to melt down” and make into ingots for international sale to help a suddenly bankrupt nation pay off its debt, says Chandler.

What resulted: “East Asia got the lesson to self-insure” after the International Monetary Fund imposed tough measures in exchange for financial relief, says Marsh. And the crash raised awareness of the interconnectedness of regional financial markets and economies. 

6. Dot-Com Bubble Burst, 2000-02

What happened: In the 1990s, with the internet revolutionizing professional and personal life, stocks in companies with “.com” after their names surged. Twelve large-cap stocks rose more than 1,000%; one, chipmaker Qualcomm, saw its stock increase more than 2,500%. Investors gobbled up shares of tech IPOs but seemed unaware that not every company tied to the World Wide Web could sustain its growth – or even had a viable. “A new economy was being born and it was hard to place a value on it,” Chandler says. But finally, people did – aided by some tighter money policies imposed by the Federal Reserve. They started to sell. By October 2002, the tech-heavy Nasdaq had fallen more than 75% from its March 2000 crescendo of 5,048.62.

The damage: Pets.com, Toys.com, and WebVan.com went out of business, along with numerous other internet companies large and small. Even larger, blue-chip tech companies suffered. 

What resulted: Along with revealing that many tech startups had no clothes, “the overall downturn also exposed things that otherwise would have stayed hidden” in other firms, like accounting irregularities, says Muir. The Sarbanes-Oxley Act of 2002 was established to protect investors from corporate fraud. And “a lot of broker-dealers probably did more due diligence before they put more money into any internet funds,” says Marsh.

7.  Subprime Mortgage Crisis, 2007-08

What happened: At the turn of the 21st century, real estate was hot. Hungry for commissions, lenders practically gave money to under qualified homebuyers. Investors bought up mortgage-backed securities and other new investments based on these “subprime” loans. Eventually, though, the inevitable happened: Burdened by debt, borrowers began to default, property prices fell, the investments based on them dived in value. Wall Street noticed, and in 2008 the stock market started to decline. By early September, it was down almost 20%. On Sept. 15, the Dow Jones Industrial Average dropped nearly 500 points.

The damage: Financial giants that had invested heavily in real estate securities, including venerable firms Bear Stearns and Lehman Brothers, failed. Businesses couldn’t get loans because banks “didn’t know who to trust,” says Muir. Unemployment approached 10%. The misery spread overseas, where the Nikkei dropped almost 10% on  Oct. 8, 2008. The US entered the Great Recession, which officially lasted until 2009, though economic recovery remained sluggish for years. 

What resulted: Through the Troubled Asset Relief Program, or TARP, the federal government rescued hobbled financial institutions; it also assumed control of other agencies, like troubled mortgage-market-makers Fannie Mae and Freddie Mac. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 regulated swaps and other exotic investments for the first time and led to the creation of the Consumer Financial Protection Bureau. 

8. COVID-19 crash, March 16, 2020

What happened: By the beginning of 2020, COVID-19 had spread widely in China and then to Europe – notably Italy – and to the US, where restaurants and nonessential stores closed to stem the tide of infection.

As investors realized the extent to which the coronavirus could spread and negatively affect the economy, the stock market began to quiver. On March 16, with mandatory lockdowns being announced,the Dow Jones Industrial Average lost nearly 13% and the S&P 500 dropped 12%. 

The damage: Struggling businesses furloughed or laid-off workers and some shuttered forever. Restaurants were limited to deliveries only and then partial-capacity table service. Travel restrictions kneecapped the airline and hotel industry. The human loss of the COVID pandemic has been devastating, with more than 300,000 deaths in the US and 1.5 million worldwide. As of September, more than 31 million people were either unemployed or lived with an unemployed family member, according to the Center on Budget and Policy Priorities.

What resulted: The Cares Act of 2020 allowed extended unemployment payments, and government stimulus funds helped Americans stay afloat. The stock market bounced back as e-commerce companies like Amazon, makers of personal protection equipment, and pharmaceutical companies surged in value. Many businesses whose employees worked remotely during the COVID crisis said they would continue a similar arrangement once the pandemic passes, but “it remains to be seen whether it’s a permanent shift,” says Muir.

The Financial Takeaway

Many of the above examples demonstrate how disasters that strike stock exchanges can leave positive legacies in their wake – even though they cause plenty of immediate pain.

Some stock market crashes maul economies for years. Others merely shake up investor confidence, making people more cautious in their choices. They can cause human tragedies and result in game-changing government reforms. 

While the triggering events for stock crashes vary – involving everything from copper-mania to condo prices – the ultimate outcome has always been the same: The market recovers.

Related Coverage in Investing:

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What is a recession? How economists define periods of economic downturn

Business cycles chart the ups and downs of an economy, and understanding them can lead to better financial decisions

Why double-dip recessions are especially difficult, and what they mean for the general state of the economy

‘The worst crash in our lifetime’: One market expert says stocks are screaming toward a Great Depression-like setup in early 2021 – and warns an 80 to 90% plunge isn’t out of the question

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