Worried about Monday's drop? Really?
When we close the books on 2015, we may never be entirely certain what caused today's 331.34-point drop in the Dow Jones industrial average.
It could be that a Russian oligarch, fearing reprisal from Vladimir Putin, sold all his stocks in preparation to fleeing the country and moving to a starter castle in Patagonia. It could be that someone on a vast trading floor in Manhattan hit "sell" instead of "buy," starting a wave of copycat trading around the world.
It could be the full moon in Cancer.
The most plausible answer is that people sitting on large gains from a multiyear bull used the fall in oil prices and malaise in Europe as an excuse to sell. Sell in December, you owe your taxes in April. Sell in January, and you owe your taxes in April of 2016.
If you're saving for a goal that's comfortably far off — 10 years or more — it really doesn't matter why the Dow fell 1.9% Monday. Unless you think that the future of the U.S. economy is so bleak that we're headed for the fate of Rome shortly after the Vandals arrived, there's no reason on earth for you to look at today's tumble and decide that you, too, should sell.
In the next few days, you'll see stories with headlines like this:
•You'll be shocked at what this billionaire says about the coming market crash!
•Seventeen reasons why the next Great Depression starts this year!
•Five portfolio managers who never wear underwear!
OK, you probably won't see the last one. But you'll see some variant of the first two. The problem is, the people who write stories like the first two have been writing them since 1982. And calling two bear markets in 32 years isn't much of a record. Permabears tend to be politically motivated hacks or cynical hucksters who prey on the fears of the gullible.
Even with Monday's tumble, the Standard and Poor's 500-stock index is still up 8.6% the past 12 months, not including dividends. That compares to about 7.8% from long-term government bonds and 0.01% for money market funds.
What will the next 10 or 20 years bring? Who knows? Since 1950, the U.S. has seen five wars (Korea, Vietnam, the Persian Gulf, Iraq, Afghanistan), 10 recessions, riots, presidential assassinations and attacks on U.S. soil. The stock market had a 22.6% drop in a single day. Yet here we are, and the S&P 500 has gone from 16.93 on Jan. 5, 1950, to 2020.58 today.
Problems in Europe or a drop in the price of oil seem pretty slight in the face of all these.
The stock market is not the place to be if a one-day drop gives you the vapors. It's not the place to be if a two-year drop gives you the vapors. It's the place to be if you're a long-term optimist.
And it's not the place to put all your money, because sometimes, the pessimists are right. Hold your nose and put some money in cash, bonds, real estate and gold. They may look bad now, but they will look better on days like today. And should there be a really big crash someday, you'll have money you can use to buy stocks at bargain prices. And that's the best way to view a really big down day in the market. Monday wasn't one of those.