Aug 21, 2025
Imagine this scenario: Your best friend’s birthday is approaching, so you head out to Party City to grab some last minute supplies before hitting up Rite Aid for a birthday card. Then, you go home for a dinner made with Del Monte veggies.
Unfortunately, as of this year, those three ubiquitous American brands — Party City, Rite Aid and Del Monte — joined the list of hundreds of other U.S. companies that declared bankruptcy.
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According to the latest S&P 500 Global numbers, July counted 71 U.S. bankruptcies among large public and private companies — up from 63 the month prior — with the report citing “elevated interest rates” and “uncertainty from US tariff policy” among the main culprits.
The pace of bankruptcies is set to surpass totals from the height of the pandemic in 2020, when 639 companies declared bankruptcy. Just seven months into 2025, 446 had already declared bankruptcy, according to the S&P.
Could these mounting bankruptcies portend an economic collapse on the horizon? And if so, should investors sell their stocks and cash out before the crash?
While that seems like the logical thing to do — and perhaps the most prudent option for those who are cash-strapped — experts agree that weathering the stock-market storm is often the best way forward.
History shows the storm will pass
Historical data indicates that the biggest stock-market gains can come during the worst economic downturns.
AP reporters Stan Choe and Cora Lewis reported that the S&P 500 has recovered from evey downturn — including the Great Depression, dot-com bust and pandemic — “to eventually make investors whole again.”
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New York Times columnist Jeff Sommer observed that, “of the 10 best [one-day returns] in the last 50 years … five occurred during the great financial crisis of 2008 and 2009. Three of those five occurred while the stock market was mired in a recession.”
In fact, one of those days — delivering the third-best returns in half a century — occurred this year on April 9. The market rallied after President Donald Trump announced a 90-day pause on many tariffs. Then it fell the next day “when it became clear that many tariffs, especially those on China, would still be extremely high.”
Which illustrates his point that trying to predict the market “is a fool’s errand,” and that the best course of action is long-term investments.
What kind of return can you get with this kind of strategy? How does 467% sound?
That’s what the Motley Fool calculates you could have earned to date if you’d invested in an S&P 500 index fund in 2007 at the market’s peak — just before the 2008 crash — and held on through July 2025.
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These experts advise investing in diversified portfolio of strong businesses that have the ability to stay the course during a recession, and avoid panic selling if stocks fall.
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When to dump that losing stock
On the off chance you find yourself holding a sinking stock, Investors.com advises holding steady until that stock falls below 7 or 8% of its original value — what they call the “7%-8% sell rule,” based on their research of more than a 100 years of stock market activity.
They found that leading stocks don’t generally fall more than 8% in value, but that if they do, the 7%-8% loss point is when to “immediately shift into capital-preservation mode and cut that loss short.”
If you hold stock in a company that does file for bankruptcy, Fidelity Investments warns that there is a good chance you will lose your most or all of your investment.
That said, you can take proactive measures to sell before bankruptcy, as continued steady drops in reported earnings and revenues are usually clear warning signs.
So, as always, it’s best to keep a keen eye on your investments so you catch any drastic developments before it’s too late.
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Mike Crisolago is a Staff Reporter at Moneywise with more than 15 years of experience in the journalism industry as a writer, editor, content strategist and podcast host. His work has appeared in various Canadian print and digital publications including Zoomer magazine, Quill & Quire and Canadian Family, among others. He’s also served as a mentor to students in Centennial College’s journalism program.
