Where is the Stock Market Panic Now?

Source: Yahoo Finance

Source: Yahoo Finance

It occurred to me this week that I had not heard much about the stock market since it started going south in January.  So I perused the Internet and came across some interesting article headlines from times past:

“Dow Falls Below 8,000: First Time Since ’03” (ABC News, Nov. 19, 2008)

“Wall Street Cheers as Dow Jones Passes 13,000 for First Time,” (Daily Mail, February 21, 2012)

“Trend Analyst on Stocks: “If The Dow Drops Below 15,000… I Would Suggest People Start Buying Food & Ammo” (Mac Slavo on SHTFPlan.com, October 15, 2014)

“Sell Everything Ahead of Stock Market Crash, Say RBS Economists,” (The Guardian, January 12, 2016)

Then I checked the Dow Jones Industrial Average (DJIA) to see where it has been lately.  According to Yahoo Finance, it opened today at 17,652.  The 52-week high is 18,351 and the 52-week low is 15,370, which occurred on August 24, 2015.  The second lowest point over the past 12 months occurred on January 20, 2016, when the Dow closed at 15,450.  What is the point, you might ask?

In the context of being prepared for retirement (which many people aren’t, according to a recent study), saving enough for the golden years becomes much more difficult when savers’ actions are influenced by emotional news headlines and not rational, long-term planning.  Not a market crash goes by where I have not heard of an investor pulling everything out of stocks and funds (when prices are lowest) and moving into bonds, cash or gold.  Stocks seem to be the only good that defies the traditional economic theory that people tend to demand a particular good when the price falls, not the other way around. As a result, many well-meaning savers and investors end up selling stocks or moving out of equities at a low point, losing large amounts of money, and then hopping back in when prices creep up.  This is a surefire way not to earn a decent return on your investment.

It all sounds so simple, but in a world where feelings seem to matter more than facts, emotional decisions dominate when it comes to investments.  Will it ever change?  Who knows, but it is always important to keep some perspective.  For young savers who have been scared off by baby boomers’ horror stories about the market, consider the 30-year chart (pictured above) of the Dow since 1985.  See that little dip that occurred around October 1987 (otherwise known as Black Monday)?  Imagine if an individual with 30 more years before retirement had taken all of her money out of stocks on that day and just “given up,” compared to the person who stayed in for the long haul up to now.  Who fared better? (Hint:  The average annual return on the Dow from January 1985 to January 2016 – exactly 30 years – was 11.6 percent, including dividends.)

As I said, a little perspective never hurts.


Comments (1)

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  1. Wynn says:

    The chart looks good but when one considers it has largely been driven by the Fed monetary policy of easy credit and corporate M & A and stock buybacks, what is it really? A house of cards. Don’t blame anyone from staying out of the casino, it will blow up.

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