It can be scary when stocks decline. And even normal market volatility can be uncomfortable, especially with large day-to-day stock market moves. The market’s increase over time has raised the level of the Dow Jones Industrial Average (Dow) and, as a result, 100-point shifts have become more common. That’s because 100 points aren’t what they used to be.
Let’s use the Dow’s milestone of 20,000. At this level, a gain or loss of 100 points would be less than 1% – it’s actually just 0.5%. In the 1970s and ’80s, a day when the Dow dropped 100 points was a big loss, as the table below shows. But more recently, daily Dow moves have frequently been 100 points or more. Of course, daily fluctuations sometimes pile up, and there’s always the possibility of a market pullback. But you’ll undoubtedly see more headlines when the Dow drops 100 points than when it rises 100 points.
|Average Dow Price||% Decline for 100-point Drop|
|*Assumes Dow at 20,000. Source: Bloomberg data, Edward Jones calculations.|
Historically, the stock market drops by 10% about once a year and pulls back by 5% about three times a year.1 With the Dow at 20,000:
When you’re a long-term investor, your actions during a stock market decline may mean the difference between success and failure. If you’re prepared and not surprised, you’re less likely to react in an emotional way.
Remember that selling is not your only option to limit losses. Review your portfolio with your financial advisor and rebalance to the appropriate mix of stocks and bonds, if necessary. You also can consider adding stocks at lower prices to take advantage of such market moves.
1Source: Ned Davis Research. Past performance is not a guarantee of future results. An index is not managed and is not available for direct investment.
Investing in equities involves risks. The value of your shares will fluctuate, and you may lose principal.