What the 1929 Stock Market Crash Can Teach Investors

Safeguards put in place

Some of the problems that made the Great Crash morph into the Great Depression have been alleviated.

In 1929, it was perfectly possible to save prudently in a bank savings account and lose most of your money because bank deposits weren't insured. The Federal Deposit Insurance Corp. now insures bank deposits up to $250,000 per bank per person and often more depending on how the deposits are titled.

Deposit insurance from the federal government also covers most credit unions.

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The Federal Reserve Bank now regulates margin loans: The current maximum amount of margin is 50 percent. In other words, at least half of the stock you buy must be with your own money.

The Securities Act of 1933 cracked down on fraud in the financial services industry and required publicly traded companies to give investors information about their financial condition. And the Investment Company Act of 1940 unified rules for mutual fund companies and limited the purchase of securities on margin.

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No barrier to stockbrokers in banks

However, some of the laws that came out of the Great Depression have been eased. The portion of the Glass-Steagall Act that required commercial banks and investment banks to be separate entities was repealed in 1999. The 1933 law was passed because banks that speculated on their own accounts collapsed in wake of the Great Crash.

And if you want to invest with insane amounts of leverage — Wall Street's current euphemism for margin — you still can do so, thanks to exchange-traded funds that promise to rise or fall as much as three times as an underlying index, such as the Standard & Poor's 500 stock index.

Finally, no one can guarantee that stocks and the economy won't swoon again.

The most recent bear market, which lasted from 2007 to 2009, clawed the S&P 500 for more than 50 percent of its value and saw millions of people default on their mortgage loans. Only immediate government action kept many major banks from failing.

Although modern governments try to stabilize the economy in a crisis, those policies can change. Your best defense is to diversify your holdings, keep some cash for a rainy day — and always try to avoid getting caught up in the investment manias of the day.

John Waggoner has been a personal finance writer since 1983. He was USA TODAY's mutual funds columnist from 1989 through 2015 and has worked for InvestmentNews, Kiplinger's Personal Finance, the Wall Street Journal and Morningstar.