It’s the latest doom and gloom headline from the financial world. The Dow Jones Industrial Average dropped below 10,000 points at the closing bell today, and it was the first time it closed below 10,000 since 2004. It first hit the benchmark of 10,000 in 1999 at the height of the dot com boom. What does this mean for you? Well, it’s not good, and your investments are taking a huge hit. The Dow Jones tracks the largest 30 U.S companies and their stock performance. Chances are that you have some investments with Dow companies. The Dow isn’t the best index to measure how the stock market is doing. The S&P 500 is a much better index to gauge the market’s performance from a snapshot point of view. However, that index has been dropping like a rock as well. Based on my infinite wisdom and knowledge, here’s my take on what to do and what not to do.
What NOT to do.
Don’t pull out all of your money. The market isn’t “crashing”. It’s dipping, but it’s not crashing. It did the same thing after the dot com boom. It went all the way up to 11,000, and then it dropped like a rock back down to 8,000. If you pull everything out of the market now, you’ll pay capital gains taxes on taxable investments, you’ll pay penalty fees on retirement accounts, and you’ll double your expenses. If you pull out and re-invest the money later, you’re paying more expenses to trade the investments. The only time I would advise pulling out is if you’re in extremely risky investments such as a handful of single stocks. If this is you, you’re extremely under-diversified, and you need to pull out your money. Then, get with a financial professional and start investing your money wisely.
What TO Do
Now is the time to choose wisely. I don’t believe in buying single stocks, and I hope you’re not playing with that fire. Buy up index funds, low-cost mutual funds, and ETF’s that track established industries that are not affected by the real estate market. If you want to hold up on investing at all in the market, go ahead, but realize that you’re missing out on buying opportunities. If a mutual fund that usually trades at $25 a share is now trading for $20 a share, you bet that it will get back to $25 a share in the near future. If you buy in at $20, you’ll make a 25% return on your money less taxes and expenses.
This is just my opinion so feel free to agree or disagree. If you’d like to voice your opinion, feel free to do so in the comments section. Money Crashers always encourages spirited debate.