Keep a cool head despite Dow’s drop, says expert
Fear is spreading among investors after a day that saw the Dow Jones drop as much as 1,500 points dramatically below 25,000.
The massive selloff led to the worst single-day point loss in the Dow’s history, the biggest fall since 2008, a year that raises uneasy memories of the global financial crisis. Undoubtedly, the day will have some wondering about their personal finances and what to do with their investment portfolios.
But some commentators advise that investors not be skittish. Preet Banerjee, a personal finance expert, told CTV News Channel that this is just business as usual.
“This happens from time to time and it’s not something that people should be freaking out about,” he said Monday. “If you’re thinking about your own investment portfolio, probably the best thing to do is not touch it. Don’t do anything and stick to your plan.”
When considered on a percentage rather than point basis, the day’s events aren’t quite as dramatic. The declines today aren’t even among the top 300 biggest percentage drops in the Dow’s history, dipping just 4.6 per cent. The biggest percentage drops in history are as steep as more than 20 per cent. While the numbers are unsettling from a day-to-day standpoint, says Banerjee, it doesn’t mean the outlook is bleak.
“Part of the reason that we’re seeing this today is because the market is actually doing really well for the last couple of years and to a certain extent there are a lot of people who have been looking for any excuse to sell,” said Banerjee. “There are all these danger factors that people have on the top of their mind, but they’ve been waiting for an excuse. For some people the selling activity is just them playing on these fears.”
On Friday, the Dow dipped 666 points and some were hoping Monday might be calmer after a weekend period of reflection. Not so. “It’s a very volatile day on the market,” said Marvin Ryder, associate professor at McMaster University School of Business.
Ryder says pessimistic investors are a growing influence as the market becomes less bullish.
“Bears see the world as the glass half empty, bulls see the world as the glass half full. For the better part of a year and a half, the American stock market has been rising quickly and dramatically and the bears have been growling more and more and more that a correction is just inevitable, it’s going to come crashing down and they keep looking for evidence,” he said.
Despite the volatility, Banerjee says most personal investment portfolios won’t be impacted much by the Dow’s drop since its common for people have balanced portfolios featuring both stocks and bonds, which means, for example, the market could be down 4 per cent, but their portfolio might only drop 1.5 or 2 per cent that day.
“Don’t worry too much about this, because this again does happen from time to time,” said Banerjee. “The worst thing you can do is sell in reaction to being fearful.”