Whew! How are you feeling? It’s been a wild few days in the stock market. If you’re trying to stay sane, follow this Simply Money Advisors “survival guide:”
Distract yourself from all the scary, alarming headlines
If you're a long-term investor (which we hope you are), just don't even look at headlines.
In the grand scheme of things, it doesn't matter what happens over the course of a few days if you still have 20 years or so to retirement and another 20 or so in retirement.
Stop obsessing over “points”
It never fails. Whenever the stock market falls, headlines focus on the points the Dow Jones Industrial Average lost: “Dow plunges 567 points,” or “Dow slumps 1,000 points.” But points mean nothing! You need to focus on the percentages.
Consider this: in October 1987 on “Black Monday,” the Dow fell more than 500 points in one day. But at that time, the Dow was only around the 2,200 level, so that was more than a 20% drop! But now, since the Dow is near the 25,000 mark, a 500-point drop is around a 2% decline.
Similarly, on Monday of this week, you might have heard the Dow had its worst point drop in its history (1,175.21 points). That’s true. But on a percentage basis it only dropped 4.6%, which is only the 112th worst drop ever.
So, while points sound more dramatic than percentages in headlines and on newscasts, understand that the significance of points diminishes as the stock market grows.
And a bonus tip: stop looking at the Dow. It’s made up of just 30 companies. At Simply Money Advisors, we like looking at the S&P 500 – that’s comprised of 500 companies.
Understand that this is normal
Stocks go up and stocks go down… but we just haven’t seen the “down” in a while. In all of 2017, the biggest drop was 2.8%, so it’s easy to forget that stocks can fall.
On average, there’s a 10% “correction” every year or so. It’s all just a normal part of the stock market’s cycle.
Remind yourself that the economy is still in good shape
Economic recessions are typically what kill stock market rallies, and thankfully, the overall economy is still doing well.
At Simply Money Advisors, we look at lot of data on a daily basis: jobs, consumer spending, manufacturing, housing, interest rates, just to name a few indicators. Currently, the risk of a recession over the next six to nine months is low – we believe about 1%.
Double-check your investment mix
If you listen to Simply Money on 55KRC, you’ve heard us tell you over the last few weeks that the time to look at your investment mix of stocks and bonds is when things are calm. Well, that opportunity has come and gone.
So, if you didn’t position your investment mix properly and you’ve found yourself a nervous wreck over the last few days, that’s a good sign you have too much exposure to stocks.
The Simply Money Point
Don’t be surprised if stock market turbulence sticks around for a while. But if you have the proper investment mix for your risk tolerance and financial goals, you’ll be in a better position to protect your long-term financial future no matter what stocks might do on a short-term basis.