- Volatility in the Dow Jones Industrial Average and the S&P 500 has caused anxiety among investors recently.
- For the average person investing for retirement, daily market moves don’t matter much.
- The best thing you can do is to keep your money invested, and perhaps even invest more.
The stock market can be a fickle friend.
On Thursday, the Dow Jones Industrial Average – an index that tracks the stock prices of 30 major US companies, such as Apple, McDonald’s, and Walmart – dropped over 1,000 points. The S&P 500 – which tracks 500 of the largest US companies, including Amazon, TripAdvisor, and Verizon – fell 3.75% on Thursday.
The Dow Jones has dropped by way more on a percentage basis
On a percentage basis, the recent drop wasn’t that impressive. In 1987, the Dow dropped by 22.6% in one day. Monday’s decline was a paltry 4.6%, and Friday’s was only 2.5%.
There are a lot of theories floating around about why the market declined: the tax cuts are working,workers are finally getting raises, interest rates (and inflation) could be going up. Even robots were blamed.
Whatever the reason, stocks and other investments are always on the move.
It’s easy to feel good when your 401(k) balance keeps climbing because stocks are riding high, or if you bought bitcoin on a whim before its seemingly endless rise last year. But on days when the market falls (or bitcoin continues to tumble), it’s normal to feel a tickle of panic.
We don’t typically ask ourselves why the market is going up (“Of course it is – the economy is strong, and it will only get better!“). But any sign of decline calls for exhaustive analysis.
Last year was a particularly gentle year for investors, with a nice steady climb. When the stock market is rocky, as it has been lately, it’s described as volatility. And it’s not easy for anyone to stomach.
Regardless of why stocks decline, there’s one thing you should always do with your money
Making money with money – essentially, investing – is a special kind of thrill.
We’ve been in what investors call a bull market for almost nine years now. It’s the second-longest stretch on record in which we haven’t seen at least a 20% drop in the S&P 500, according to CNBC.
Chances are your 401(k) balance (or your IRA) looked pretty healthy by the end of 2017. Perhaps it lulled you into saving more and investing more – just in time for the market to stumble a bit.
But now is not the time to throw in the towel. In fact, many advisers will tell you to “buy the dip,” or take advantage of the declining prices to put more money into the stock market.
You can do that by increasing your 401(k) contribution or putting money into an IRA. (You can still contribute up to $US5,500 for 2017 before April 17.) Investing in a target-date mutual fund is the easiest way to ensure your investments match your age and financial goals; for example, a target-date 2050 fund would work for a 35-year-old who plans to retire in about 30 years.
Ultimately, daily market moves really don’t matter for the average American investor. Investing for retirement is an essential part of reaching your financial goals. Along the way, the market will sometimes go way up, and other times it will go down. It’s all part of the process.
You have to be in it for the long haul – through big swings in either direction. Don’t slow down, and don’t try to time the market. You won’t win. The only thing to do is stay the course.
Lauren Lyons Cole is a certified financial planner and a senior editor at Business Insider.