Why am I saving and investing?
After a week like last week, it's an important question. There are many reasons people save and invest, including to:
- Live the life they want today and in the future
- Accumulate resources so they're prepared for any bumps in the road
- Provide an education for their children
- Offer assistance to parents
- Support a young person with a disability
- Do good in the world
- Live comfortably in retirement without anxiety
However, none of these reasons have anything to do with short-term market fluctuations.
Last week, major U.S. stock indices experienced a selloff, and we saw a dramatic downturn in stock markets. The Dow Jones Industrial Average was down 5.7 percent, the Standard & Poor's 500 index lost 6 percent, and the NASDAQ fell 6.5 percent, reported Barron's.
Those are big moves for a single week. The kind of moves that light up the emotion centers of investors' brains and make them want to sell.
It's not a new phenomenon. In 2002, in an article for CNN Money, Jason Zweig explained the brain's potentially negative influence on investment decisions, "But in the world of investing, a panicky response to a false alarm - dumping all your stocks just because the Dow is dropping - can be as costly as ignoring real danger. For one thing, it can cause you to flee the market at a low point and miss out when the market bounces back. A moment of panic can also disrupt your long-term investing strategy."
So, what happened last week? In short:
- The Fed raised rates, as expected. The Federal Reserve raised the Fed funds rate by a quarter of a percent, which may benefit savers and investors, but will make borrowing more expensive.
- Tariffs triggered trade war worries. The Trump administration levied tariffs on China, raising concerns of a global trade war.
- You're fired! There was additional turnover among senior advisers to President Trump.
- Can they do that? British news reported a data analytics firm has been influencing elections around the world in some unsavory ways.
- Don't share my data! There was news a social media firm had shared the personal data of thousands with a researcher who shared it with a third-party firm without permission.
- Sigh. Another data breach. An online travel company experienced a data breach that may have exposed the personal information of 880,000 users.
- The economy is chugging along. Last week's U.S. economic releases were overshadowed by everything else, but many indicated a strengthening economy, reported Barron's.
That's a lot to take in over the span of five days. The critical thing is to recognize these short-term events are unlikely to change your long-term financial goals. Financial decisions, including buying and selling investments, are important and can be life shaping. They should be grounded by long-term financial goals and foundational principles of investing. They should not be based on the brain's instinctive fear and flight response.
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Data as of 3/23/18
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1-Week
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Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's 500 (Domestic Stocks)
|
-6.0%
|
-3.2%
|
10.3%
|
7.1%
|
10.8%
|
6.7%
|
|
Dow Jones Global ex-U.S.
|
-2.7
|
-2.1
|
13.4
|
3.3
|
3.8
|
0.9
|
|
10-year Treasury Note (Yield Only)
|
2.8
|
NA
|
2.4
|
1.9
|
1.9
|
3.5
|
|
Gold (per ounce)
|
2.8
|
3.9
|
7.9
|
4.3
|
-3.4
|
3.8
|
|
Bloomberg Commodity Index
|
0.1
|
-0.8
|
3.4
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-4.4
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-8.7
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-7.9
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DJ Equity All REIT Total Return Index
|
-4.0
|
-10.0
|
-3.7
|
0.9
|
6.3
|
6.1
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S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron's, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
