I was driving home from work today, and I heard that the Dow Jones Average dropped 416 points today and the Nasdaq fell 95 points. Luckily, the highway has medians or else I would have ran right off the road. I knew that economic “experts” were predicting a slow in the economy and I guess the Chinese market took a big hit too. But come on, 416 points in one day? That’s the biggest single day drop since the 9/11 attacks. I think it also has something to do with the real estate market that seems to be at a stand still right now. But what does this mean for the average hard-working American like you and me? Do you glaze over the fact that the stock market fell so much, or does it make you uneasy about the state of our country and economy?
I don’t think that we have to get too worked up over one day. Sometimes fluke stuff like this happens and stock traders will sell at the drop of any bad news. The important thing to remember is that it is impossible to try to time the market. Don’t pull out all of your investments or cash out your 401k after hearing something like this. Even if the dow dropped consistently for the next month, I still wouldn’t tell someone to jump ship. The reason is because the market has its peaks and it has its valleys. If you ever learned anything in college-level economics or if you never took college-level economics, then you need to realize that economies are cyclical. It is a part of life, just like nature. Economies go through cycles and that cycle involves good times and bad times. I’m not even saying we’re going through a “bad time” right now, but if we do, it’s important not to write off the stock market as the worst investment you can buy. It’s simply not true.
The stock market has averaged over a 10% return on its investment since its inception. The key to being a great investor is being patient. You have to ride out the waves of the stock market if you really want to become wealthy when you are older. If you pull out your money, put it back in, and pull it back out every 6 months or so, you’ll be losing out on a ton of investment capital. Remember, you are not a stock broker and you’ll never be one. It’s not your job to follow the market with a fine-tooth comb. Find mutual funds with great long-term track records and park your money there for a long, long time. I’m not a financial advisor, but I can guarantee that you’ll come out on top if you do that one simple thing.