For most seasoned investors and advisors, the memory of past market crashes isn’t an abstract academic lesson — it’s lived experience. Yale economist William Goetzmann is no exception. Having navigated at least four major downturns — 1987, 2000, 2008, and 2020 — he understands both the financial and psychological toll of sharp equity market declines.
“I watched my entire life savings drop by 50% during the crash of 2008,” he recalled in a recent conversation with Business Insider.
That moment resonates with countless investors who saw their portfolios cut in half during the global financial crisis. For wealth advisors and RIAs, these scars remain important context in client conversations. A generation of investors has internalized the belief that another crash lurks around the corner — a fear that is persistent, sometimes irrational, and often at odds with the historical data.
Goetzmann’s research underscores how deeply ingrained this fear has become. Since 2000, his surveys show that investors consistently estimate the probability of a market crash within the next six months at around 10% to 20%. Strikingly, these elevated crash expectations often have little to do with market fundamentals. “What our research suggests,” he explains, “is they can be reacting to even things that aren’t having to do with the stock market. Like if there’s a big earthquake nearby, they tend to think there’s a higher probability of a crash.”
For advisors, this insight is telling. Market psychology does not move solely on valuations, earnings, or macroeconomic signals. Broader fear — whether from geopolitical shocks, natural disasters, or even headlines unrelated to finance — can bleed into investors’ perception of risk and influence behavior.
The Bubble Question: AI, CAPE Ratios, and Historical Parallels
Current market conditions heighten those anxieties. The AI-fueled rally has propelled certain tech stocks by more than 80% in just a few years, while the S&P 500’s Shiller CAPE ratio now sits at its third-highest level in history. Conversations around bubbles and looming corrections are again dominating client meetings.
But Goetzmann’s research provides a useful counterbalance. The data does not support the assumption that large run-ups inevitably lead to devastating crashes. In a landmark 2016 study, he analyzed episodes worldwide since the 1880s when equity markets doubled within either one year or three years. He then measured subsequent performance.
The findings? Severe drawdowns — defined as markets falling 50% within the next one- to five-year window — were vanishingly rare, occurring in less than 1% of cases. Far more often, markets kept compounding. In fact, roughly 26% of the time, they doubled again.
This is a powerful historical perspective for RIAs. While valuations and sector-specific exuberance are valid concerns, history suggests that broad crashes following periods of rapid growth are exceptions, not norms.
Narrow Data, Broader Lessons
Of course, Goetzmann acknowledges limitations in his framework. His dataset doesn’t fully account for multi-year drawn-out declines such as the dot-com bust, where the S&P 500 fell nearly 50% from 2000–2002 and was still down roughly 18% five years later in 2005. Such episodes remind advisors that averages obscure the pain of particular cycles and that not all recoveries are symmetrical.
Moreover, real-world investor experiences are shaped not just by portfolio performance but by economic conditions. Crashes often coincide with recessions, which create forced sellers. Unemployed workers or liquidity-constrained households may have little choice but to liquidate positions at market bottoms. This is precisely where disciplined financial planning, thoughtful liquidity management, and advisor intervention can make the difference between long-term success and permanent capital impairment.
Still, Goetzmann’s long-term message remains clear: time horizon matters more than timing. For investors who can stay invested, the probability of catastrophic, unrecoverable losses diminishes dramatically over five-year holding periods. “If you wait five years after this event, you’re going to be better off,” he emphasizes.
That observation dovetails with advisors’ fiduciary role — helping clients align investment strategies with realistic time horizons and ensuring adequate liquidity buffers so that fear-driven selling is minimized in downturns.
Managing Fear in the Age of Perpetual Shocks
Yet Goetzmann’s concern today is less about the mechanics of crashes and more about investor psychology in an age of nonstop digital news cycles. “In this day and age, we’re being shocked all the time when we get on the internet or watch television with scary things,” he notes.
That constant barrage of alarming headlines magnifies investor fear. And when clients internalize the belief that the market could “drop out tomorrow,” they risk abandoning equities altogether. For RIAs, this poses a long-term challenge: convincing clients not just to stay invested during volatility, but to remain invested at all.
Advisors have always had to balance optimism with prudence, but today’s environment of heightened fear and media amplification raises the stakes. If fear keeps investors permanently on the sidelines, they miss out on compounding returns that, historically, have been the single greatest driver of long-term wealth creation.
Lessons from Personal Experience
Goetzmann himself serves as an instructive case study. Despite personally experiencing sharp portfolio drawdowns in four separate crashes, he held his positions through each cycle. In every instance, subsequent bull markets restored and expanded his wealth.
In 2020, when pandemic-driven uncertainty sent equities tumbling in March, he again stayed the course. “That spring was quite scary,” he admits. “But I held my breath and just said, ‘Well, I’ll stick with what the long-term data show us about the stock market.’”
That discipline is precisely the mindset wealth advisors aim to cultivate in clients. Staying invested doesn’t eliminate volatility, but it does allow investors to participate in recoveries that nearly always follow.
Implications for RIAs and Wealth Managers
For fiduciaries, Goetzmann’s research and perspective offer several takeaways:
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Fear is a constant variable, not a temporary condition. Advisors should assume clients will always perceive crash probabilities as higher than history suggests. Addressing these fears proactively — with both data and empathy — strengthens trust and reduces the likelihood of panic-driven selling.
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Time horizon alignment is the ultimate risk management tool. Building portfolios around realistic liquidity needs and matching investments to client timelines ensures that downturns don’t force premature asset sales.
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Investor psychology is as important as asset allocation. Market outcomes are often less damaging than the behavioral mistakes fear induces. Advisors who can coach clients through turbulent periods preserve not just returns but relationships.
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Historical context matters. Sharing data on long-term outcomes after surges and crashes reframes narratives of inevitability around bubbles. Advisors can lean on Goetzmann’s research to counter the idea that “what goes up must come down hard.”
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Communication strategies must evolve. In an era of 24/7 media shocks, advisors should anticipate client anxiety triggered by non-market events. Proactive outreach, frequent check-ins, and context-setting become central to the advisory role.
The Path Forward
The challenge for RIAs is not simply portfolio construction, but guiding clients through the emotional terrain of investing. Goetzmann’s work reinforces what many advisors already know: crashes are painful but survivable, fear is pervasive but manageable, and long-term discipline is the antidote to short-term panic.
Ultimately, the role of a trusted advisor is to provide clarity in the midst of noise, discipline in the midst of fear, and perspective in the midst of volatility. Just as Goetzmann rode out four historic crashes to benefit from subsequent bull markets, advisors can help clients frame downturns not as endpoints but as temporary disruptions along a long journey of wealth accumulation.
By reframing fear as a constant but conquerable element of investing, RIAs can ensure clients stay invested, stay disciplined, and stay positioned for the future.
