If you have turned on the news in the past decade, then you have probably seen how the stock market moves up and down in what seems like large jumps. The stock market will always have volatility; and to a point, you really want some volatility in the market since that is when you make the most gains. The stock market has come a long way from its early days, even if you just go back 50 years and look at the Dow Jones Industrial Average (DOW). Within the last quarter, the DOW crossed over the 20,000 mark and kept climbing. If you watch the markets daily then you can see 100 to 300 point swings on a daily basis, but what is 100 points?
If you look back to the 1970’s, a 100-point swing would have been an 11.5% increase/decrease depending on whether it was up or down. A swing like that would cause a great effect on your investments. Fast forward to 2017; a 100-point swing is less than 0.5% increase/decrease. (See Chart).
*As of 03/27/2017
So when you hear a news story of the market selling off 100 points, there is no reason to panic. Historically the market will adjust 10% once per year and about 5% three times per year. In a market that is over 20,000, then a 10% sell off would have to be 2,000 points and a 5% would be 1,000. While these adjustments are common, there is still a high percentage that you will end the year with positive returns. Over the last 35 years, 27 have ended positive, or 77% of the time, even with several adjustments through the year.
While 100-point swings have begun to be a common occurrence in today’s markets, the actual changes aren’t as dramatic as you might be lead to believe. Remember that panic is the enemy of long-term investing! Being able to buy during downturns allows you the greatest return on your investment.
