Time to buckle your seatbelts

If you own individual stocks or a variety of stocks through mutual funds and/or exchange traded funds, the first part of the month of August has been interesting (to put it mildly). I have talked before about how the markets are near all-time highs. Since October 2023, most market indices have increased dramatically, but we received some negative employment data on Friday, Aug. 2, and the markets decided to move down.

On Thursday, Aug. 1, the S&P 500 (an unmanaged index that cannot be invested in directly) was down 91.16 points which translates to 1.6%. I always coach investors to focus on percentages because percentages bring perspective which might also foster patience and prudence. Ninety-one points doesn’t sound too bad for the S&P 500, and 1.6% is certainly a tolerable number. 

But, when we talk about the Dow Jones Industrial Average (another unmanaged index that cannot be invested in directly) being down 568.99 points on Aug. 1, that sure sounds like a lot, but, in percentage terms it was 1.4%. Even though the Dow lost more than five times the number of points than the S&P 500, it was actually down less in percentage terms. Percentages bring perspective.

The markets were down on Friday, Aug. 2 as well as Monday Aug. 5. In those three trading days, the S&P 500 was down and the Dow Jones was down 2,193.52 points. Down over 2,000 points?! Is the world falling apart? Is this what people have been fearing since stockpiling food and water for Y2K? 

Well, in percentage terms this is 5.37%. Yes, that is about the opposite of what one might earn in a one-year certificate of deposit or Treasury bill in one year, and it only took three trading days for that to evaporate. Hopefully you own stock in the proper proportionate amounts of your entire net worth and have the proper time frame to allow these fluctuations to occur. They are normal, and they can actually be healthy.

Over the same three days, the S&P was down 6.3%, and the NASDAQ Composite (yes, another unmanaged index that cannot be invested in directly) was down 8.2%. My mother was a wonderful cook, and she had a masters in home economics from The University of Mississippi. She taught culinary arts and professional food services at a junior college, and two things I can remember her saying: “If you’re looking, you ain’t cookin’” and “If you can’t handle the heat, get out of the kitchen.” These two statements can apply to investing, also. 

My recommendation: Buckle up for the near term. Economic numbers, presidential election, the Fed’s plan for interest rates, inflation, Israel/Palestine conflict, Russia/Ukraine conflict, and, ultimately, the profits of companies in which you invest will be some of the major factors affecting market performance. And, buckle up for the long term: Be prudent, focus on percentages, don’t jump ship based solely on emotional decisions, and seek good advice.

Gulf County resident Walter L. Woodrick is a certified financial planner practitioner, and author of two books. His website is WoodrickFinancial.com, and his text number is 850.724.1369. Securities and advisory services are offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC. The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. #613159-1