“Stock Market Puts in Worst Opening Week Ever”
“Odds of Winning Lottery Set at 1 in 292 million”
“Global Stocks Give up Trillions in Global Sell Off”
I am sure you can come up with a few examples of your own.
Headlines are meant to grab your attention and draw you in. Good ones do that well. Unfortunately most people stop at the headline and that’s all the news they get – or care to get.
At this moment someone, somewhere is telling someone else about the bizarre ax-murderer-love-triangle story they heard about on the internet.
While that may be a stretch, I have no doubt that somewhere someone really is advising their coworker to skip that IRA or 401k contribution because the stock market is “having its worst year in a century and your odds of making money are better with the lottery!” You know I am right.
With the exception of the one I used to lure you in to reading this blog post, most headlines have a ring of truth, but they are not the whole story.
True, the first week of 2016 was the worst opening week of the stock market in nearly a century. It was down about 5%. Year to date, most markets are off about 10% from their all-time highs in what is commonly known as a “correction”.
We’ve been here before.
According to a an article published by Bloomberg News Service the S&P 500 has lost 5% or more in a single week, 29 times since 1980. The market continued to be down 12 weeks later 8 of those 29 times.
Over 70% of the time markets were higher three months later – about 5% higher on average.
True. Worldwide, markets probably have lost trillions this month. Just like they did in August of 2015. Just like they have so many other times before. However, what you never read about are the trillions that are made after markets reach a bottom and bounce back.
Since March of 2009 markets have gained as much as 200% or more depending on which specific market you look at. According to information provided by The World Bank, the total value of US stocks has increased by over $11 trillion since then. Worldwide, that figure jumps to over $20 trillion during the same time!
No one can predict the direction of the market. US stocks could continue to lose value before they go up again. The impact of China and low oil prices could have a much more significant affect on the American economy than economists predict. Although pundits will always have their opinions, truth is no one knows for sure what will happen next.
What we do know is that stocks are cheaper today than they were a few weeks ago. We also know that, more often than not, market corrections like this are fairly short and markets eventually bounce back.
There is no guarantee of course, but for most investors with a time horizon of five years or more, your best bet is probably to stay fully invested even as we go through this difficult time.
“Market Gains Trillions Since January Lows”, while not a real headline, is certainly one worth looking forward to.
For a more detailed argument on why investors should NOT panic right now, click here.