A Big Market Crash Could Be the Perfect Time to Build Wealth

When financial markets crash, it may be the best time to invest.

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Updated May 28, 2024
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The 2022 stock market is the worst it's been in 50 years. With out-of-control inflation, sky-high interest rates, tech stocks selling off, and crypto dropping off a cliff, it seems like it's all bad news, all the time.

But what if this is actually the best news for you in the last 15 years?

Contrary to the negative news cycle, wealth is built in bear markets, and this market crash could really boost your bank account. Here’s how.

Is a market crash coming?

Rido/Adobe dissapointed man looking over a stock market crash

If you haven’t been paying attention to your investment accounts (good for you), things aren’t looking too good in 2022.

In fact, the Standard and Poor’s 500 (S&P; 500) index is down over 20% from its previous all-time high in 2021, and the Dow Jones is down over 12%.

The tech sector has been hit the hardest, with some stocks down 60% or more, and founders losing billions in net worth (sorry, Zuckerberg).

But with inflation still coming in at nearly 8%, the Federal Reserve has no plans of slowing down rate hikes. This is causing bonds to crash, stocks to dump even further, and housing prices to start correcting as mortgage rates are the highest they’ve been since 2001.

Market experts and analysts expect more turbulence in the markets, with a more severe crash possible in the next 12 to 24 months.

But while things are looking bleak for investors in the short-term, this actually may be one of the best wealth-building opportunities since the 2008 Great Recession.

If you’re in a position to continue earning a solid income and are looking to take advantage of the market crash, there are several things you can do to bolster your investment returns in the next 10 to 20 years.

If you invest in high-quality assets with a long track record of performance, you can think of the market crash as a “fire sale,” with everything 20% to 50% off.

So, grab your coupons, it’s time to go shopping! Here are some of the best ways to take advantage of the market crash right now.

Stack your cash

juliasudnitskaya/Adobe dollar bills in glass jar on wooden background

With talks of a recession and more and more companies announcing layoffs, focusing on bolstering your savings may be one of the best things you could do.

Most Americans are a $1,000 emergency away from disaster, making it more important than ever to have the expert-recommend three- to six-month emergency fund in place.

If you have steady employment, stacking your cash is a smart move.

Pay off high-interest debt

Shisu_ka/Adobe man sitting on floor holding credit cards

While stocks are on sale, paying off debt is always a great idea.

If you have high-interest debt, paying it off now can free up cash flow to invest more and lower your monthly expenses in the case of an unfortunate event, such as a layoff.

Utilizing the debt snowball or debt avalanche method can help you focus on one debt at a time, and lower your stress during this turbulent market.

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Increase 401(k) contributions

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If you have a 401(k) or other workplace retirement account, a simple way to invest in the stock market fire sale is to increase your contributions.

With a maximum contribution of $20,500 (increasing to $22,500 in 2023), you can save on taxes and invest more directly from your paycheck.

Most workplace plans allow you to increase or decrease your contributions at any time. You just need to contact your human resources department and request the change.

Max out your IRA

TimeShops/Adobe young plant grow and coins stack

Individual retirement accounts (IRAs) are tax-advantaged retirement accounts that allow you to invest up to $6,000 per year ($6,500 starting in 2023).

You can choose to save on taxes this year by investing in a traditional IRA or save on taxes in retirement by investing in a Roth IRA.

Maxing out these accounts each year compounds your tax savings year after year, maximizing your long-term returns.

IRAs are available at most major online brokerages and offer more investment choices than workplace retirement accounts. If you have the funds, maxing out your IRA is a great move in today’s market.

Buy the dip

DenPhoto/Adobe  iPhone X with application Stocks of Apple

If you’ve been waiting for your favorite stocks to be available at a discount, now may be the time. With the overall market down by over 20%, some stocks have been hit even harder.

The tech sector in particular is seeing some stocks that are down over 70% from their all-time highs.

If you want to “buy the dip,” finding quality companies with a good long-term track record can produce outsized returns over the coming years.

While there is a chance things keep “dipping,” taking advantage of current prices (and again if it dips further) can lower the purchase price of your favorite stocks in your portfolio.

Load up on bonds

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Bonds aren’t the most exciting investment around, but they are part of a diversified portfolio.

While rising interest rates impact bond prices negatively, the yields produced by bonds and bond funds have increased dramatically.

If you’re looking to bolster your portfolio with a fixed-income asset that has increasing dividends, adding some bonds or bond funds can be a great strategy.

Just be aware of the interest rate risk over the coming year, as the Fed is still raising rates at a rapid pace.

Buy a home at a discount

Maksym Povozniuk/Adobe couple holding keys in their new house

While real estate prices have risen significantly over the past few years, the huge increase in mortgage rates and the threat of a recession are starting to lower prices in some regions.

If rates continue to increase, the housing market is expected to continue dropping, with buyers no longer able to pay inflated prices, and sellers becoming desperate to sell.

If you’ve been waiting for prices to return to earth, now may be a great time to go home shopping.

While mortgage rates may make it harder to afford a home with a loan, cash buyers can get screaming deals as the housing market flips back to a buyer’s market.

And if you do get a mortgage with a high rate, remember to “marry the home, but date the rate.” You can always refinance later if rates come back down.

Pay down your mortgage

osabee/Adobe man calculates home loan mortgage

With mortgage rates nearing 8% and expected to continue climbing, buying a home is getting expensive. But if you have a high rate on your mortgage, now may be the perfect time to pay it down.

Paying off your mortgage early is always a hotly debated topic, with investors being in favor of keeping the debt and investing instead.

But paying down your mortgage principal is a guaranteed rate of return, and if you are getting an 8% return on your money, it’s hard to argue with that.

Just make sure extra payments to your mortgage go toward the principal and not just future interest.

Maybe … do nothing?

NDABCREATIVITY/Adobe architects working on project in office

Just because “stocks are on sale” doesn’t mean you have to do anything. In fact, a perfectly acceptable (and wise) way to handle this market is to do…nothing.

With talks of a recession, increasing layoffs, and uncertainty over the next 12 to 24 months, focusing on your job and keeping a healthy emergency fund may be the best things to do.

Bottom line

Baramee/Adobe businessman working with coins and money on the tab

Investing is a roller-coaster, but you only get hurt if you jump off. Staying the course and continuing to invest is one of the best long-term strategies.

If you’re in a position to boost your savings and put more in, you might come out of this market crash even more wealthy.

Just be sure to put some savings aside for a rainy day, as a storm is definitely on the horizon.


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