The ups and downs of the stock market always make big news.
Recently, the stock market plunged on Feb 5, after it started falling the week prior. The biggest point decline on record was 1,200 points – a 4.6 percent loss on the DJIA. In others words, the top 500 richest people in the world lost about $114 billion US in one day.
But the Dow also had a record peak of 26,617 on Jan 26.
The key to all this is to not panic. The stock market frequently makes dramatic moves in a short time. The most famous plunge was the start of the Great Depression in 1929.
People panicked after a couple of days of losses on the Dow it saw Friday, Oct 25, 1929, close at 301, the Monday (Black Monday) close at 260 a drop of 13.5%, the next day (Black Tuesday) close at 230 a loss of 11.7%. But Wednesday the Dow reversed and it rose to 259.
This up and down action isn’t for the faint of heart; many people savings and investments can get wiped out. But because there are large losses doesn’t mean the market won’t quickly turn around.
These fluctuations don’t affect the average person’s spending habits much. The stock market generally doesn’t pay for people’s bills or trips to the restaurant. Stocks are generally held for long-term goals like retirement, children’s education costs, and big purchases.
In reality, many people don’t have stocks or even savings for that matter, so these drastic drops and rise really don’t affect a large population.
On average 14% of the US owns shares or stocks in mutual funds.
So if you are someone like Warren Buffett who lost $5.1 billion Feb 5, this will matter to you a great deal, the rest of the population won’t lose sleep over it. Some who own stocks don’t have as much as Mr. Buffet, so their loss isn’t as great. About half of the people investing in stocks have $25,000 or less invested.
Something to keep in mind is some don’t directly own stocks, it is held in pensions and retirement accounts, which affects the bottom line of their retirement income. As of 2015, this accounted for 37% of US stocks.
Does this mean we all need to worry daily about the stock market?
Have some comfort in knowing that the ups and downs of the stock market affect few Americans.