The Stock Market is Falling! In Other News, Grass is Green!

The stock market is falling! In other news, grass is green.

Photo courtesy of MojoBaer

I try to pay attention to the news as little as possible, especially when it comes to the stock market. But sometimes it’s unavoidable.

The past couple of weeks was one of those times.

My twitter feed blew up with people freaking out about the stock market, and if I didn’t know any better I’d have thought the world as we knew it was about to collapse.

Luckily, I do know better. And I hope you do too.

What was all the fuss about anyways?

After a stellar 2013 (actually a stellar 2009-2013), the stock market was mostly flat for a few weeks to start 2014 before taking a sharp nosedive in late January.

stock market falling

Source: Morningstar

Between January 22nd and February 3rd (last Monday) the US stock market1 dropped 5.7%. That’s a pretty big swing over the course of 12 days and caused a lot of the doomsayers to start predicting “the next big market crash”.

1 All references to “the stock market” in this post refer to the entire US stock market as represented by Vanguard’s VTSAX mutual fund.

But wait. Isn’t this just what the stock market does?

Why yes! Yes it is! Thank you for asking!

In times like this, when the media tries to whip us all up into a frenzy, it can be easy to forget that stock market swings are not only normal, but THEY’RE EXPECTED. That’s right people, the stock market will move up and down, sometimes rather rapidly. That’s just part of the deal.

But don’t take my word for it. Here are a few examples showing just how meaningless these big short-term movements can be:

  • In August of 2013, the stock market fell 4%. The return for the year? 33.5%.
  • In May of 2012, the stock market fell 6.7%. The return for the year? 16.4%
  • In 2011, from 7/22 to 8/8 the stock market fell a whopping 17.8%! Scary!!! The return for the year? -0.12% (just about flat).
  • In 2010, over the 2.5 months from 4/23 to 7/2, the stock market fell just over 16%. That’s a pretty big drop over a pretty long time! And yet, the return for the year was 17.3%.

So just in the past few years there are some pretty clear examples that big short-term market dips, even those MUCH bigger than what we experienced over the last couple weeks, are utterly meaningless in the big scheme of things.

But we can go even more extreme

Over the first 68 days of 2009 (from 1/1 to 3/9), after one of the scariest market years ever in 2008, the stock market dropped 24.63%. That’s almost 25% in just over two months!!! Time to panic right?

Maybe not. The total return for the year ended up being almost 29%. I don’t know about you, but I’ll certainly take that.

We can even go the other way

In 2008, after a rough January and February, the market rebounded to produce a 13% return from 3/10 to 5/19. Things were looking up!

Except that 2008 ended up being a horrible year for the stock market, with a total return of -37%. That’s right, NEGATIVE 37%! Maybe things weren’t so rosy after all?

What does this mean for you?

Look, I want to help you focus only on the things that are legitimately important. You’ve got financial security to build. You’ve got financial freedom to work towards. Those things matter. They are the financial foundation upon which you can build a happy life for your family.

And most importantly, those are long-term plans. They’re your plans. And they don’t change just because some talking head is yelling at you from the TV that the stock market is about to implode.

Investing is an important part of reaching your goals. It’s an incredibly powerful tool when used correctly. And good investors are the ones who create a plan with a long-term vision and stick with it through the short-term swings.

Now, I want to be clear that I’m not trying to predict anything about the stock market. There may actually be a big crash in the near future. There may not. I have no idea.

But what should be clear from the data above is that we can’t use the recent past to predict the future. It simply doesn’t work.

And besides, those kinds of short-term swings should already be expected as part of your investment plan. They happen. All the time. It shouldn’t be surprising when they do, no matter how many people on TV want to tell you otherwise. It’s just the nature of the beast.

Don’t let yourself get derailed by the shock news cycle that pretends this kind of everyday occurrence is the end of the world. You deserve better.

It’s your life. These are your plans. Stick with them.

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40 Comments... Read them below or add one of your own
  • DC @ Young Adult Money February 10, 2014

    Great points, Matt, and it’s easy to be caught up in all the media hype. At the same time I can’t blame the media – frenzy sells!

  • John S @ Frugal Rules February 10, 2014

    “Why yes! Yes it is! Thank you for asking!” Lol, love it Matt! I was having a discussion with a family member about this last week and they were sort of surprised I wasn’t “getting out” as the media is cautioning us to do. My response (of course it was a little more in depth than this) was – why should I base my plan on what the talking heads are spouting off on? Yes, there is time to take money off the table and hopefully get some gains, but that should be done in light of your plan.

    • Matt @ momanddadmoney February 10, 2014

      “that should be done in light of your plan.” Yes exactly. It’s your plan that should dictate any movements not a knee-jerk reaction to the mood of the day. Hopefully your family member was convinced!

  • Laurie @thefrugalfarmer February 10, 2014

    The stock market dips used to freak me out too, but now I only think of one thing when the market falls: Man, I wish I had more money to buy stocks right now. 🙂

  • Michael Solari February 10, 2014

    Yeah great post. It’s easy to wrapped up in the hype if you’re not careful. There are a lot of examples and the one that comes to mind is black monday. The market dropped more than 20% in one day but ended up for the year. There will be a lot of volatility when you look at short term numbers.

    • Matt @ momanddadmoney February 10, 2014

      Yep, lots of ups and downs. It honestly kind of confuses me when I see all these people on TV yelling about the latest spike or dip. Are they really that transparently fake? Or are they just that naive? Either way it’s pretty scary.

  • Brent Applegate February 10, 2014

    I know these things… But is sure is helpful to be reminded of them! 🙂

    • Matt @ momanddadmoney February 10, 2014

      It’s hard not to get at least a little caught up in the moment, good or bad. Sometimes it’s helpful just to say this stuff out loud. (Or write it down!)

  • Andrew February 10, 2014

    Thanks for the reminder. I don’t time the market, and usually don’t get caught up in the media frenzy, but it’s tough when you keep hearing about it.

    • Matt @ momanddadmoney February 10, 2014

      Yeah, the constant noise can definitely start to pull at your nerves. That’s why I generally prefer to just completely ignore all of it. Much easier that way.

  • Ree Klein February 10, 2014

    Great post, Matt, as usual! I know that I’ve mentioned this in a comment on a prior post of yours, but it bears repeating here because it supports your point. I’ve been around a while and seen these swings. I used to get all freaked out but now I just see “On Sale!” signs!

    When everyone around me was moving their 401ks to cash in the 2007/2008, I ramped up my contributions to reach the max allowed and kept my investments in the same funds they were in BEFORE the mess. Know what? I WON!!!! While everyone else was saying “at least I didn’t lose” the truth was, they did lose. They lost an opportunity to recover from the dip and buy more on sale.

    This latest dip was great…another mini sale! I had some funds sitting in a money market and took the opportunity to dump the cash in two Vanguard funds. Sweet!


    • Matt @ momanddadmoney February 10, 2014

      I love your story from the last market crash. Such a perfect example of a long-term mentality paying off.

  • Tonya February 10, 2014

    I try not to get caught up in any kind of media hoopla. The media is too fear based.

    • Matt @ momanddadmoney February 10, 2014

      Agreed. All across the board really. I honestly try to avoid as much “news” as possible. I find that it brings much more negative than positive to my life.

  • Shannon February 10, 2014

    This is awesome and so true! The 24 hour news media needs to create drama and unfortunately this drama leads investors to make emotional and poor investment decisions. Market “volatility” is a natural part of the markets, and if anything, these “down” times are great buying opportunities!

    • Matt @ momanddadmoney February 10, 2014

      Agreed. This kind of thing is so commonplace, it’s like everyone getting worked up because it rained for two days straight. Oh my God! It’s never going to be sunny again!

  • Shannon Ryan February 10, 2014

    I LOVE your post title. 🙂 It is so true. The media’s job is to create news. And in the era of 24/7 newscasts, social media, etc … the stories need to be bigger and bolder. So they sky is falling and yet it’s not. Market volatility is never going to go away and I don’t want it too. Yes, it hurts when we get those big drops but those big upswings are how we make our money. No dips … we wouldn’t have the growth we need. It is about perspective, staying focused on your goals and having a long-term investment mindset.

    • Matt @ momanddadmoney February 10, 2014

      Thanks Shannon! For the most part I get why they talk about it (though I do wonder how many of those people are genuinely just clueless to how the market works). But it’s so frustrating to know that they’re willing to sacrifice the financial security or real, hard-working people just to get a little rating bump. Because that’s exactly what they’re doing. And it’s despicable in my opinion.

  • Jon @ Our Fine Adventure February 10, 2014

    Given where we are in life (my wife and I are mid 20s), I almost like it when the stock market takes big drops, because it means that the next time I buy shares (dollar-cost averaging), I’ll be buying more, and it will eventually be a benefit in the long run!

  • Done by Forty February 10, 2014

    A dose of sanity is always welcome. I combat my natural urge to overreact by more or less avoiding the stock market news. I hadn’t known we were in a dip until I tabulated my net worth update for January. Still, my strategy only works so well, as eventually I get the news. Better to employ some of the wisdom you throw out there, and just realize it’s not a big deal. It’s business as usual.

    • Matt @ momanddadmoney February 10, 2014

      I try as hard as I can to avoid the news as well. Sometimes though, like this past week, it just gets shoved in my face and I can’t really help it. I think a healthy dose of avoidance along with a healthy dose of understanding reality is a good mix.

  • Liz February 10, 2014

    When I see the market take a dip I feel inclined to invest more. It just feels like all of the ETF’s I invest in are on sale… time to buy!

    • Matt @ momanddadmoney February 10, 2014

      I love all the people saying this. If more people had this attitude I wouldn’t have to write articles like this!

  • Kali @ Common Sense Millennial February 10, 2014

    Once again – brilliant post. That, and the title/picture had be cracking up 🙂 Love it!

    • Matt @ momanddadmoney February 12, 2014

      Thanks Kali! I had some fun with that picture for sure. Glad I could make you laugh!

  • AvgJoeMoney February 11, 2014

    That’s the issue many people have with online investment plans vs. a good, solid advisor. A great advisor can make points like the ones above, while the onine diversification plan might send you an email saying “hang in there.” This is the time when behavioral finance matters.

    • Matt @ momanddadmoney February 12, 2014

      Great point Joe. There’s only so much that stone-cold logic can do. I think the online investment plans are actually a really good thing for our society in general, but I completely agree that they can’t replace a good, trusted human adviser. Psychology and emotions matter.

  • Grayson @ Debt Roundup February 11, 2014

    People forget that investing is about long term success. Unless you are about to retire in a few months, then getting all worked up just because of short drops is going to get you nowhere.

    • Matt @ momanddadmoney February 12, 2014

      Agreed. And even if you’re about to retire, your plan STILL should have already factored in the reality of those short-term drops. You might have prepared for it differently than if you’re in your 20s, but it’s still part of the deal. There’s just no circumstance where this should be unexpected.

  • Pauline @RFIndependence February 12, 2014

    I try to remember the saying when people cry, you should buy. It is hard as I am not made of steel either but I got a few good moves last week.

  • Stefanie @ brokeandbeau February 12, 2014

    I’m investing for the long term so I don’t pay much mind to all this craziness.

  • Rich Ellinger February 15, 2014

    We are all our own worst enemy when it comes to investing. Dalbar study proves it every time.

    • Matt @ momanddadmoney February 17, 2014

      The numbers are pretty telling. Staying the course might be boring, but it’s pretty darn effective.

  • Phoenix Jet February 15, 2014

    Just keep buying… It’s what I did through 2008. Never stopped. I know people in their 30’s who moved all their money out, and are now sucking wind b/c they will never catch up.

    • Matt @ momanddadmoney February 17, 2014

      Market timing is too just difficult to do with any reliability. And messing up even once can leave you out of a bull market and missing out on big returns. As you say, better to just keep buying.

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