What should you do if the US stock market suddenly drops by 25%? Here’s the late founder of the Vanguard Group’s sage advice for investors

Hold steady

The first thing you should do when the stock market takes an unexpected dive south is stop and take a breath.

“Who the heck knows whether it’s still heading south?” Bogle said in the clip shared by Hayes. “It may have stopped going down at 25%. A lot of them do stop in the 20%-25% range.”

On March 11, 2020, a market-altering event occurred when COVID-19 was declared a pandemic by the World Health Organization. Five days later, the S&P 500 dropped 12% — its third biggest percentage loss in history. It then continued to tank by a total of 34% until it bottomed out on March 23. But in a rapid turn of fortune, the S&P 500 returned to its old highs by August of 2020.

Bogle said a 25% or 35% drop in the stock market is “easily” and “always” possible because “markets are markets.” Instead of reacting to market swings through fear or excitement, the late investor’s advice always stayed the same: “Don’t do something, just stand there.”

And if you must do something, “buy more” stock while the prices are low, he said. In doing so, you may reap the rewards of a strong market recovery.

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Dollar-cost averaging

Bogle spoke often about the benefits of dollar-cost averaging for everyday investors.

Dollar-cost averaging is an investing method where you strategically invest the same amount of money in a stock, mutual fund, or other types of security on a regular basis at fixed intervals — regardless of whether the market is hot or not.

This eliminates the issue of trying to time the market and instead helps you gain time in the market, which is often touted as the key to long-term investing success.

Using this method, when the price of a mutual fund or other security is low, you get more shares for your money and when the price is high, you get less shares. If you’re committed to dollar-cost averaging, this will help you to accumulate assets and build your wealth over time.

The stock market may go up or down at any time, according to Bogle, who said: “Who really knows? But so much the better when you’re putting money in every month because it will come back.”

Hayes, or the Decade Investor, summarized Bogle’s commentary well on X, posting: “When the market is in a decline, do not freak out. Do not make emotional decisions with your money. Follow the plan. Follow YOUR plan.”

If you don’t currently have a financial plan, consider working with a financial adviser who can help you manage your money and give you the best chance of achieving your major life goals.