All news outlets were highlighting yesterday that the Dow Jones had it’s largest one day point drop ever. It was pretty hard to miss. Should one be concerned? Is the next depression/recession around the corner? Cautious perhaps, concerned – less so. Yesterdays stock market news, helps put a number of investment practices into perspective.
If one focuses their investment strategies on longer term priorities, one day fluctuations should not be a concern. If investment monies are needed in the short term, a more cautious investment approach should be used, so stock market fluctuations have minimal impact. The reality of yesterday’s ‘largest single day point drop in the Dow Jones’ is by historical standards, much less severe. On a percentage basis, the drop doesn’t make the top 100 daily drops in the Dow Jones market. It comes at a time of unprecedented continuous growth in the stock market over the last number of years. The stock market was due for a correction.
It is important to put regular/daily stock market fluctuations into perspective and into one’s own financial priorities. It is also important to note that news agencies create interest with sensational headlines and highly emotionally charged language in their reporting. News reporting has become about creating interest, ratings and clicks. One reference I heard to yesterday’s stock market fluctuations was ‘Market Mayhem’.. Not really. It was a normal day in the market. Markets rise and fall regularly/daily. The Dow Jones is at 25000 levels and it fell 1000 points yesterday.
While it is important to stay informed and on top of market conditions and place your investment strategies into perspective, it is also critical to maintain a rational approach. It is not always easy when we are being constantly bombarded with information. I have seen many many times in my career, people making hasty investment decisions because of days like yesterday. Remember the investment adage – ‘Buy low, sell high’. Reacting to news like yesterday and liquidating investments out of fear (and often against the advice of investment advisor and financial planners) is ensuring loses are crystalized. While market down turns will affect your reported values, they don’t become losses unless action is taken and investments liquidated.
Studies demonstrate that holding investments long term over daily market fluctuations promotes longer term returns. Another investment adage is – ‘ It’s not about timing the market, but time in the market’ that impacts returns. Attached is an article that indicates the impact on returns of this philosophy:
During challenging and volatile market conditions consult with your Investment Advisor/Financial Planner who can provide impartial and professional advice based on financial priorities which have been previously discussed. Beware of making emotional and impulsive investment decisions. Short term decisions may have profound longer term effects.
These daily financial tips are designed to be short ideas covering different aspects of family and business finances. They are short pieces intended to provide information to enable individuals, families and businesses to make informed financial decisions. Not all tips will apply to every situation, but over the course of a year, most financial topics will be covered. Check in regularly and share with friends and associates.