Unless you’ve been off-the-grid, you’ve probably heard that the Dow or “the market” has had a sudden nose-dive. It certainly seems important and people are running around on TV chattering away about it, but how does it really affect you?
What actually happened: the market (people sometimes just say the Dow although they are quite different), Nasdaq and markets around the world, in general, fell sharply on Friday of last week and Monday of this week. You may have heard that the Dow dropped over a 1000 points in one day. Those sound like scary numbers, but do you need to worry?
What does it mean for “regular people”: If you are NOT within 1 year of retirement, 1 year of sending a child to college with funds from a 529 plan, or manage a mutual fund for a living, you are a “regular person.”
If you are a regular person, take a deep breath and DO NOT WORRY about yesterday’s plunge. Although your retirement/529 accounts may have been affected, you’re not touching them for a while and you will never know this happened by the time you take distributions of that money. Do NOT make any changes to your portfolios over this blip.
What does it mean for the OVERALL economy: We’re not worried about our accounts (as noted above), but what if the barely recovered economy hits the skids?
Remember, employment is at pre-2008 levels now. We are recovered, folks, which means the Fed is wondering when to worry about too much growth (yes, there is such a thing, and it can trigger inflation). As such, the Fed is wondering when to raise rates.
This week’s blip will probably mean that the Fed will NOT raise rates in the fall as some expected. That means the Fed is still trying to promote growth in the economy by way of cheap money. If you are thinking of refinancing or getting a mortgage, do it sooner rather than later, because by spring I would think rates will be higher (maybe significantly).
This week’s blip tells us there is a lot volatility elsewhere in the world, especially China. If China has a greater than expected slowdown, that could slow our economy down, but that does not necessarily mean recession. It's just too early to tell. We have to watch and wait to see how things go in China.
Remember, the financial and news networks thrive on panic and sometimes like to get us all in a lather so we stay tuned. Sometimes 24 hour coverage is helpful, many times it is not. This is one of the times it is not.
Bottom line: do not worry, do not panic, do not make portfolio changes, do speed up any refi or mortgage plans you have over the next 6-9 months. Continue saving, because it is always good to save. Chill out, and change the channel.