Editors Note: This article was republished with permission from Barbara Friedberg Personal Finance
Investors across the globe are trying to make sense of the recent stock market crash. While talking with my aunt on the phone, even my uncle was busy checking his investments.
If you went online to check your portfolio balance on Monday, February 5th you might have experienced delays getting to your investment account. Vanguard, the enormous investment company, locked investors out of their accounts due to the sites volume. The trading programs were so busy, retail investors had little chance of buying, selling or in some cases even viewing their investments.
Investors were stressed, scared and in a panic last Monday as the DOW fell 5.61% and the S&P 500 declined 4.10%.
I crafted advice for robo-advisor investors on Monday entitled, “Why Did the Stock Market Crash and What Should Robo-Advisor Investors Do?”
In fact, during the subsequent days, my advice was proven sound. In short – “Don’t panic!” The stock market has regained much of the ground it lost since Monday. Just take a look at the 5 day chart of the S&P 500 index.
Yet, professionals far smarter than I took to the internet to chime in about the largest DOW stock point drop. But before you read what the media pros are saying about the stock market volatility there are a few things to consider:
The DOW only represents 30 stocks. The S&P 500 index, which holds 500 company stocks is a much better indicator of the overall market.
Last Monday’s point drop of 1175 points represented only a 4.61% loss. Far smaller than the percentage decline on Black Monday, October 19, 1987, when the DOW plunged 22.6%.
If you’re a long term investor, there’s no need to panic. And if you’re not, you shouldn’t be in the stock market anyway.
By the end of the trading day, the Dow had swung all the way back and more — up more than 560 points.
But the speed at which the market has bounced up and down has left many investors spooked, especially those who have been lulled by a nearly nine-year-old bull market.
“Market corrections are normal, no matter how nerve-wracking they are at the time,” says Greg McBride, chief financial analyst for Bankrate.com. He adds that investors should “maintain a long-term perspective and resist the urge for any knee-jerk reactions,” noting that the market is about where it was a mere two months ago.
In fact, financial strategists say there are several reasons for worried investors to do one thing: calm down.