It’s probably an understatement to say that the drops in the Dow last week had people a bit uneasy. On Wednesday, October 10, the Dow fell by more than 800 points as tech stocks largely took a tumble. It dropped again when the bell rung on Thursday morning, though not as drastically as it did a day earlier. There are a few explanations behind the stock market’s fall, and the reasoning you get is largely based on who you ask.
The President, as well as many investing analysts, have explained the fall as the market righting itself. After all, a 3 percent dip off of record highs shouldn’t be all that concerning, should it? Others argue that the stock market is only going to become more volatile as the trade war with China heats up, so much so that this past week in October might serve as a pre-game warmup compared to what’s ahead. That brings us to our take: cautious optimism. While it’s only natural to feel a bit uneasy about how the Dow performed last week, it’s just as important to keep things in perspective.
Like we already noted in this post, 2018 has been a period market by record highs in the stock market. The tumble the Dow took this past week only represents about a 3 percent dip. (For comparison’s sake, about 10 years ago the Dow took a 12 point drop in a single day.) Many investors say that the drop is normal, and it’s reflective of a strong overall market. Some go on to even say that we’re not even close to the end of the current bull market that the stock market overall has been experiencing, further emphasizing that there’s no reason for concern. Experts are warning people not to sell off everything. Instead, they’re advising investors to do three things:
Reassess their overall goals: Remember, investing in stocks is a marathon – not a sprint. If you’ve invested as part of a “get rich quick” ideology, then you’ve probably gotten involved in the wrong investment strategy. Selling off your stocks will only go to lock in your losses at a time like this, and that’s not why you invested in the stock market in the first place. Keep things in perspective and realize that it’s about the long-term, not the near-term. There’s always going to be bumps and blips along the way. This past week was definitely one of those blips, but it shouldn’t warrant any sort of panic. Remember, cautious optimism is the best way to proceed.
Refrain from acting compulsively: The worst thing you can do at a time like this is act on emotion and sell everything off. Take a step back, read some of the projections for the market going forward and then realize that this dip isn’t all that unusual. It’s common for people to act on their feelings, but it’s not always the best decision to do so. Think of it this way: When you get a terse e-mail from a peer at work, do you respond back in a terse fashion moments after receiving it? Or do you take some time to digest what was said in the e-mail and then craft an appropriate professional response? If you’re among the latter type of people, then you’re already not the type to act compulsively, no matter how tempting it may be. Try to follow the same strategy when it comes to the stock market.
Buy at a discount: It’s low(er)-risk, high reward potential right now thanks to lower stock prices. Yes, there’s solid opportunity to invest at lower price points. In fact, it’s the best opportunity to buy that’s presented itself in months. You’d be foolish not to give investing in some new stocks some serious thought at a time like this.
We get it, you don’t want to see stocks drop — you only want to see them continue to climb. But the fact is that this isn’t always realistic, and it’s a matter of knowing what to do and what not to do when the market dips.
Regards,
Ethan Warrick
Editor
Wealth Authority
