A Lesson From the Biggest Stock Market Crash in History: Things Can Get Much Worse

A Lesson From the Biggest Stock Market Crash in History: Things Can Get Much Worse

By Steven Orlowski, CFP, CNPR

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In the world of investing, we’re often reminded to "think long-term," "ride out the volatility," and “stay the course.” But what if history tells us something darker, something most advisors and market optimists don’t want to acknowledge? What if, instead of the market always bouncing back, we remembered that sometimes… it doesn’t? Or at least, not for a very long time.

Let’s take a hard look at the biggest stock market crash in recorded history — and the sobering lesson it offers: things can get much worse than you think.

The Crash That Rewrote the Rulebook: Japan, 1989

When people talk about stock market crashes, they often recall Black Tuesday in 1929, the Dot-Com bust of 2000, or the Financial Crisis of 2008. But the worst crash by far — in both scale and duration — happened in Japan.

At the end of 1989, the Nikkei 225 index, Japan’s equivalent of the Dow Jones Industrial Average, peaked near 39,000. This was the height of the country’s asset bubble, fueled by rampant speculation, cheap credit, and inflated real estate values. Tokyo real estate was famously so overvalued that the Imperial Palace grounds were said to be worth more than all the real estate in California.

Then the bubble burst.

By the early 1990s, the Nikkei had begun a long, brutal slide. It lost more than 80% of its value, bottoming out around 7,000 in 2009 — nearly 20 years later. Even after multiple rallies, as of today, the Nikkei has still not returned to its 1989 peak. Over 35 years later, an investor who bought at the top would still be underwater, adjusting for inflation.

This is not a case of a temporary correction. This was a generational wipeout.

The Myth of “It Always Comes Back”

In the United States, we're told to believe in the inevitable return of stock prices. "The market always recovers" is a kind of secular gospel in financial circles. And it’s mostly true — in the U.S., historically. But that’s not a law of physics. It’s a historical pattern, and history can change.

Markets are shaped by economics, politics, demographics, psychology, and sometimes sheer chaos. Japan’s crash teaches us that even a first-world economy with strong institutions can experience a decades-long bear market.

So why do so few talk about this?

Because it’s uncomfortable. Because it challenges the narrative that stock investing is a guaranteed path to wealth over time. But as any good investor knows, avoiding catastrophic risk is more important than chasing potential returns. The worst-case scenario matters — a lot.

The American Exception — For Now

The U.S. stock market has historically benefited from a perfect storm of factors: population growth, technological innovation, immigration, reserve currency status, deep capital markets, and a unique entrepreneurial culture. But none of those are guaranteed forever.

In recent years, we’ve seen unprecedented government debt, political instability, social unrest, and a shifting geopolitical landscape. Many investors are starting to ask — quietly — whether the next 20 years will look anything like the last.

What if inflation persists? What if the U.S. experiences a true sovereign debt crisis? What if geopolitical tensions spark sustained market disruption? What if demographics and automation erode consumer spending and employment?

These aren’t wild conspiracy theories. These are plausible future scenarios. And they’re why investors need to study not just the success stories, but also the long, painful failures — like Japan.

Preparing for Worse

This doesn’t mean you should abandon the market or bury gold in your backyard. But it does mean adopting a mindset that respects risk. Here are a few practical lessons:

• Diversify internationally. Don’t bet everything on one country, no matter how dominant it seems.

• Own real assets. Real estate, precious metals, and infrastructure may offer protection in scenarios where financial assets falter.

• Rebalance with humility. Don’t chase trends. Stick to a disciplined approach that assumes you don’t know the future.

• Watch for bubbles. When valuations break from reality, step back. Mania is not a strategy.

• Plan for long droughts. Not just corrections — decades of underperformance. Do your retirement and investment plans survive that test?

Final Thought

Optimism is a great quality in life, but in investing, realism is better. The biggest stock market crash in history didn’t happen in a banana republic — it happened in Japan, a wealthy, developed, sophisticated economy. And it reminds us that no market is immune to long-term decline.

History doesn’t repeat, but it does rhyme. And if the rhyme is anything like the 1990s in Tokyo, we should all be asking the hard question now — what if it doesn’t come back?

Because sometimes, it doesn’t.

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