Stock Market Shock

The stock market has been quite volatile recently, with the Dow Jones Industrial Average dropping 666 points on Feb. 2, 1,175 points on Feb. 5 and 1,033 points on Feb. 8. There have been some up days, too, but a downward trend could continue for a while.

What should you do? Well, the worst thing you could do is panic and sell. Any money you park in the stock market should be longterm money that you can leave there for five, if not 10, years, in order to ride out sharp downturns that happen at least every few years. Selling means you’ll be on the sidelines when a recovery begins in earnest, and you’ll miss out on many gains. The days with the biggest stock market gains often follow big drops. Indeed, the day after the 1,175-point drop, the Dow surged 567 points.

The media is not helpful when it reports market drops in points instead of percentages. The 1,175point drop might have sounded horrifying, especially compared to 1987’s “Black Monday,” when the Dow fell 508 points. But in percentage points, the recent drop was a meaningful but not catastrophic 4.6 percent decline — while 1987’s drop wiped out a whopping 22.6 percent of the market’s value at the time.

Stocks can rise or fall in a single week, month or year, but there’s never been a 20-year period during which stocks lost money. If your time horizon is long enough, betting on stocks has always been a winner — especially if you have the courage to buy after a big drop. That’s what many of the best investors do. They maintain lists of stocks they’d like to buy at a good price, and then they wait for an opportunity.

You might reduce your jitters by investing in healthy companies that pay dividends, because those regular payouts tend to continue no matter what the stock market is doing.

Don’t let a market correction turn you against stocks. Expect occasional surges and plunges, and know that the market’s long-term trend has always been upward.