The worst time to be a DCA investor is during a market crash. The best time to be a DCA investor is during a market crash.
This paradox explains why DCA works.
What Is a Market Crash?
For simplicity: a crash is a 20%+ decline from recent highs.
- 2000–2002: Dot-com crash (S&P 500 down 49%)
- 2008: Great Financial Crisis (S&P 500 down 57%)
- 2020: COVID crash (S&P 500 down 34% in 23 days)
- 2022: Inflation crash (S&P 500 down 18%)
Each crash feels like the world is ending. Each time, consistent investors were rewarded.
Case Study 1: The Dot-Com Crash (2000–2002)
Imagine you decided to DCA $500/month in S&P 500 index funds starting January 2000.
Your Experience
- 2000: Market down 9%. You’re buying at lower prices. Portfolio shows small loss.
- 2001: Market down 12% again. You’re now buying at even lower prices. Portfolio is down 15%.
- 2002: Market continues sliding. You’ve bought at the lowest prices in years.
The Temptation: Stop investing, wait for recovery.
What Actually Happened
An investor who continued DCA through 2002:
- By 2007 (before the next crash): portfolio up 150%
- By 2010: portfolio up 300%
An investor who stopped DCA in 2001 and resumed in 2003:
- By 2010: portfolio up 180%
Difference: Stopping cost 120 percentage points of gains (40% less wealth).
Why? The Discount Window
When the market crashes 50%, every dollar you invest buys twice as many shares as it did before the crash. Those shares purchased at a 50% discount generate enormous returns during recovery.
Math:
- Market at $100: $500/month buys 5 shares
- Market at $50: $500/month buys 10 shares
- Market recovers to $100: Those 10 shares are worth $1,000 (vs. 5 shares worth $500)
The investor who bought at the discount earned 2x returns.
Case Study 2: The 2008 Great Financial Crisis (GFC)
September 2008: Lehman Brothers collapses. The financial system appears to be dying. Credit markets freeze. Unemployment spikes. The news is apocalyptic.
If you were DCA’ing $1,000/month in S&P 500 index funds starting in 2008, here’s your timeline:
| Date | Action | Price | Shares Bought | Total Spent |
|---|---|---|---|---|
| Jan 2008 | Start DCA | $1,400 | 0.71 | $1,000 |
| Mar 2008 | Continue | $1,300 | 0.77 | $2,000 |
| Sep 2008 | CRASH | $1,000 | 1.00 | $3,000 |
| Oct 2008 | Keep buying | $900 | 1.11 | $4,000 |
| Nov 2008 | Keep buying | $800 | 1.25 | $5,000 |
| Dec 2008 | Keep buying | $850 | 1.18 | $6,000 |
By December 2008, you’d bought approximately 6.0 shares for $6,000. Your average cost per share: $1,000. Market price: $850 (you’re down 15%).
The Nightmare: Everyone is saying stocks will go to zero.
What Actually Happened
Fast forward to January 2010:
- Market price: $1,100
- Your portfolio value: 6.0 × $1,100 = $6,600
- Your contribution: $6,000
- Your profit: $600 (10% return in 14 months)
Fast forward to 2017:
- Market price: $2,500
- Your portfolio value: 6.0 × $2,500 = $15,000
- Your contribution: $6,000
- Your profit: $9,000 (150% total return)
The Investor Who Stopped
Now imagine you paused DCA in September 2008 and resumed in January 2010 when it was “safe”:
| Date | Action | Price | Shares Bought |
|---|---|---|---|
| Jan 2008 | Start | $1,400 | 0.71 |
| Sep 2008 | STOP | $1,000 | — |
| Jan 2010 | Resume | $1,100 | 0.91 |
You’d have bought only 1.62 shares total by January 2010 (vs. 6.0 if you’d kept going).
By 2017, your portfolio would be 1.62 × $2,500 = $4,050 instead of $15,000. You’d have 72% less wealth by waiting for the crash to bottom.
The irony: You stopped investing because you were scared of the crash, but the crash was the best time to be buying.
Case Study 3: The COVID-19 Crash (March 2020)
March 2020: The fastest bear market in history. S&P 500 down 34% in 23 days. Unemployment spikes from 3.5% to 14% in a month. Everyone panics.
An investor DCA’ing $2,000/month starting March 2020:
- March 16: Market at $2,300, bought 0.87 shares
- March 23: Market at $2,250, bought 0.89 shares
- April 1: Market at $2,500, bought 0.80 shares
- May 1: Market recovered to $2,900
By May 1, 2020, after just 2 months of DCA through a historic crash, this investor:
- Contributed: $6,000
- Portfolio value: 2.56 shares × $2,900 = $7,424
- Gain: $1,424 (24% return)
By January 2021 (10 months later):
- Market at $3,700
- Portfolio value: $9,472
- Gain: $3,472 (58% return in 10 months)
The investor who paused DCA and “waited for stability” bought later at higher prices and ended up with fewer shares.
Why DCA Works During Crashes
The Psychology
Your brain screams: Stop! Protect what you have!
Your portfolio is down 30%. Every day the news is worse. Unemployment rises. Companies go bankrupt. This looks like 2008 all over again.
DCA says: Keep buying. Prices are low.
Psychologically, this is the hardest decision. Intellectually, it’s the best decision.
The Math
During a crash:
- Prices fall 30–50%
- Your fixed monthly investment buys 1.5–2x more shares
- When recovery happens (always), those cheaply-bought shares drive outsized gains
The shares purchased in October 2008 (when the market was at rock bottom) returned 200%+ over the next 10 years.
The shares purchased in pre-crash September 2008 returned 120%+ over the same period.
The difference: buying at the discount window.
The Data: What Happens After Crashes?
Every major crash in the last 100 years has been followed by a recovery:
| Crash | Duration | Low Point | Recovery Time | 10-Year Return |
|---|---|---|---|---|
| 1929–1932 | 3 years | -89% | 25 years | +500% |
| 1973–1974 | 2 years | -48% | 7 years | +200% |
| 1987 (Black Monday) | 1 day | -20% | 2 years | +300% |
| 2000–2002 | 2 years | -49% | 5 years | +150% |
| 2008–2009 | 1.3 years | -57% | 4 years | +400% |
| 2020 (COVID) | 1 month | -34% | 5 months | +200% |
Pattern: Every crash recovered. Every investor who paused and resumed later had lower returns than those who kept DCA’ing.
How to Actually Execute This
1. Automate Before the Crash
Set up automatic monthly investments before bad times. When the crash comes, you won’t have to manually decide.
2. Don’t Watch the News
The 24/7 financial news machine is designed to trigger panic. Ignore it during crashes. Read annually at best.
3. Reframe the Crash
Every 20% crash is a 20% discount. Think: “The market is on sale. I’m buying more shares at discount prices.”
4. Remember the Last Crash
How many times have you survived a “market crash” already? 2008? 2020? They always recovered. This one will too.
5. Do Math, Not Emotion
During a crash, calculate: “How many shares am I buying at these prices?” The answer will shock you (lots). That’s the power.
Calculate Your Crash Resilience
Try the DCA Calculator—model what happens if you DCA through a hypothetical 30–50% market crash. You’ll see exactly how many extra shares you’d buy and what recovery looks like.
The Bottom Line
Market crashes are terrifying. They’re also wealth-building opportunities if you have the discipline to keep investing.
Every investor who paused during 2008 and 2020 and later said “I wish I’d kept buying.” No investor has ever said “I’m glad I sold during the crash.”
The best time to invest is when prices are low. Crashes make prices low. Therefore, crashes are the best time to invest.
Automation makes this work. You don’t have to be brave. You just have to set it and forget it.