The Market Goes Up, the Market Goes Down

Earlier this week, we saw an example of a phenomenon that frequently distorts people's perception of the stock market.

On this last Tuesday, Oct. 19, the Dow Jones Industrial Average, the most frequently cited proxy for "the stock market," took a 165-point dive to close at 10,978. Much of the media was in near frenzy with stories such as "Stocks fall sharply worldwide" and "Stock market suffers worst day in months."

What many of these stories failed to emphasize, however, was context. A 165-point drop sounds big, but on a base of nearly 11,000 it was a decline of about 1.5%. That's not trivial, but it's also not a crash. A similar sized move 25 years ago would have been a much bigger percentage of the market.

The point? Don't let day-to-day headlines drive your long-term investment strategy. The market goes up, the market goes down. A sound, diversified strategy followed consistently over time is a better recipe for financial success than reacting to the latest news.