What Does Stock Market Drop Mean For Investments?
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Retirements are taking a hit and investors are losing money as the financial markets are shaken yet again.
Now many are wondering just how bad it's going to get as they watch their investments dwindle.
The DOW sunk nearly another 450 points Wednesday, closing under 11,000 for the first time in three years.
This is not what market watchers expected following the government's rescue of AIG, one of the world's largest insurers.
So who is really being impacted the most by this financial crisis?
WBZ brought in an economist to bring perspective and understanding on tough days like Wednesday, but first a quick explainer about what the DOW is and why it dropped off the way it did.
The DOW Jones is simply the average of the largest 30 companies like 3M, AT&T, G.E. and Wal-Mart.
Track Company Gains and Losses
It's the leading indicator for the business sector.
Wednesday's drop in terms of money adds up to more than $700 billion, but it's only 4 percent of the overall value.
In a historic week where major investment banking companies went under, the question is how and why is that now impacting the big companies on the DOW.
Boston University economy Professor Larry Kottlikoff says those being hurt the most right now are those who are on fixed incomes with money in the market, and those who invested in companies that went under.
"I think the 30 largest companies in the country have the same prospects today that they had three weeks ago in terms of generating revenue, so I think to have them valued so much lower today is unreasonable," Kottlikoff said.
'Curiosity' Question: Will I recoup my losses from the recent stock market drops?
"There's no guarantee but my guess is the markets will go back up," Kottlikoff said. "There is a lot of panic selling and I wouldn't encourage people to sell at the bottom."
'Curiosity' Question: Will I ever trust the stock market again?
"You can trust the market to be very volitale but to deliver a pretty good return on average over a long period of time."
'Curiosity' Question: Is the stock market just for the professional and not for the Average Joe?
"The Average Joe is in the market. It's not just for the professional, and the Average Joe needs to understand how much of his assets he wants to put in the market versus things that are very safe like inflation index bonds, for example," Kotlikoff said.
Kotlikoff will be the first to tell you that investing in the market is risky business, but historically it has done very well despite wild swings.
Asked if he was considering selling any of his stock, Kotlikoff smiled and said, "No way. Now is not the time."
Resources:
FAQs About 401K Plans5 Things You Should Know About Your 401K
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