After a week like last week, it’s an important question. There are many reasons people save and invest, including to:
- Live the life they want today and in the future
- Accumulate resources so they’re prepared for any bumps in the road
- Provide an education for their children
- Offer assistance to parents
- Support a young person with a disability
- Do good in the world
- Live comfortably in retirement without anxiety
However, none of these reasons have anything to do with short-term market fluctuations.
Last week, major U.S. stock indices experienced a selloff, and we saw a dramatic downturn in stock markets. The Dow Jones Industrial Average was down 5.7 percent, the Standard & Poor’s 500 index lost 6 percent, and the NASDAQ fell 6.5 percent, reported Barron’s.
Those are big moves for a single week. The kind of moves that light up the emotion centers of investors’ brains and make them want to sell.
It’s not a new phenomenon. In 2002, in an article for CNN Money, Jason Zweig explained the brain’s potentially negative influence on investment decisions,
“But in the world of investing, a panicky response to a false alarm – dumping all your stocks just because the Dow is dropping – can be as costly as ignoring real danger. For one thing, it can cause you to flee the market at a low point and miss out when the market bounces back. A moment of panic can also disrupt your long-term investing strategy.”
So, what happened last week? In short:
- The Fed raised rates, as expected. The Federal Reserve raised the Fed funds rate by a quarter of a percent, which may benefit savers and investors, but will make borrowing more expensive.
- Tariffs triggered trade war worries. The Trump administration levied tariffs on China, raising concerns of a global trade war.
- You’re fired! There was additional turnover among senior advisers to President Trump.
- Can they do that? British news reported a data analytics firm has been influencing elections around the world in some unsavory ways.
- Don’t share my data! There was news a social media firm had shared the personal data of thousands with a researcher who shared it with a third-party firm without permission.
- Another data breach. An online travel company experienced a data breach that may have exposed the personal information of 880,000 users.
- The economy is chugging along. Last week’s U.S. economic releases were overshadowed by everything else, but many indicated a strengthening economy, reported Barron’s.
That’s a lot to take in over the span of five days. The critical thing is to recognize that these short-term events are unlikely to change your long-term financial goals. Financial decisions, including buying and selling investments, are important and can be life shaping. They should be grounded by long-term financial goals and foundational principles of investing. They should not be based on the brain’s instinctive fear and flight response.
|Data as of 3/23/18||1-Week||Y-T-D||1-Yr||3-Yr||5-Yr||10-Yr|
|S&P 500 (Domestic Stocks)||-6.0%||-3.2%||10.3%||7.1%||10.8%||6.7%|
|Dow Jones Global ex-U.S.||-2.7||-2.1||13.4||3.3||3.8||0.9|
|10-yr Treasury Note (Yield Only)||2.8||NA||2.4||1.9||1.9||3.5|
|Gold (per ounce)||2.8||3.9||7.9||4.3||-3.4||3.8|
|Bloomberg Commodity Index||0.1||-0.8||3.4||-4.4||-8.7||-7.9|
|DJ Equity All REIT Total Return Index||-4.0||-10.0||-3.7||0.9||6.3||6.1|
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
Let’s take a good news break. After last week, we could all use some good news. Here are 10 intriguing headlines from the Good News Network:
- Scientists Believe They Found a Way to Stop Future Hurricanes in Their Tracks
- Strangers Rally Around 13-Year-old Whose Rock Museum was Robbed
- Dog that Shoplifted a Book on ‘Abandonment’ is Given the Love It was Asking For
- Stranger Becomes Honorary Grandma After She Opens Home to Stranded Father in Distress
- We’re Not Spinning a Yarn Here: Knitting May Boost Health and Happiness
- Robot Becomes Part of the Community After Easing Daily Burden of Water Collection in Remote Village
- Instead of Using Trees, Scientists are Making Sustainable Paper Out of Manure
- World’s First Mass-Produced, 3D-Printed Car is Electric and Costs Under $10K
- This Pollution-Gobbling City Bench Can Absorb as Many Toxins as 275 Trees
- Free Clothing Hung on Streets to Help the Homeless Stay Warm
There is a lot of good news in the world. Unfortunately, it doesn’t pack a wallop like bad news does, so we hear less about it.
Weekly Focus – Think About It
“When the weather changes, nobody believes the laws of physics have changed. Similarly, I don’t believe that when the stock market goes into terrible gyrations its rules have changed.”
–Benoit Mandelbrot, Mathematician and polymath
DEAN, JACOBSON FINANCIAL SERVICES