Two weeks after China devalued its currency, the Dow Jones plunged more than 1,000 points on Monday morning, leading to widespread media coverage about the stock market in turmoil. Most major networks immediately shifted their morning coverage to focus on the drop.
Whenever the stock market dips, it typically inspires a lot of coverage in the press that can seem scary to the average American who wonders what the headlines mean for their personal financial security. If your life savings are on the line, shouldn’t you do something quickly? To preserve your retirement investments, do you need to sell your stocks now?
That type of panic, however, can actually lead people to make bad financial decisions. Experts say that you should not rush to sell on a day when the headlines about the stock market seem particularly bad. The stock market is an avenue for long-term investment that can appear to be unstable on a day-to-day basis. It’s not a good idea to make financial decisions based on a few days of dire headlines, particularly if you’re invested in a diverse portfolio.
As a whole, the stock market isn’t necessarily a good measure of the average American’s financial stability. Just 55 percent of Americans are invested in stocks, a measure that hasn’t changed much even as the stock market has recovered from the 2009 slump. An even smaller portion of Americans — around 13 percent — own individual stocks.
Even the financial analysts who are wondering what the recent sell-off signals for the global economy aren’t too concerned about Americans’ personal wealth. On the Today Show, CNBC’s Jim Cramer explained that the factors that could send the U.S. market into trouble — like a big increase in unemployment, a spike in inflation, or a banking crisis — remain unlikely at this point. “There is just a tremendous decline coming from China,” he said, “and we are importing it.” Other analysts say that the sell-off could actually end up being a good thing because it will help the markets more accurately reflect the current state of the global economy.