Investment06 February 2018

Monday's stock market slide: The worst fall ever?

Ian Lundy
Ian Lundy
Chief Investment Officer

Unless you’ve been hiding under a rock, you would have seen what some media outlets are calling the stock market’s worst single day fall ever. It makes a great headline, but the statement is simply untrue.

What these media outlets are referring to is the fact that the Dow Jones Industrial Average fell by 1,175 points on Monday (US time) – a fall of 4.6%. As a measure of the US market, we would typically look at the S&P 500 instead.

Index Points are meaningless. It’s the percentage of the fall that matters.

On the same day, the S&P 500 was down 4.1%. Although this is the largest fall for some time, historically falls of this magnitude are not uncommon.

We also need to remember that the market has been rising rapidly – and unsustainably – in recent months.  At the time of writing, the S&P 500 was back to the level it was on 8 December 2017. What this means is that the last few days have reversed about two months’ worth of gains. Not nearly as bad as the headlines make out.

Were bonds affected?

On Monday bond prices rose, which is what we would expect to see during a market fall. This is an example of the benefits of investing in a diversified option, where volatile movements in the stock market can be partially offset by gains in other asset classes in the portfolio. This is the reason why we diversify our investment portfolios across a range of asset classes.

How has the local market been affected?

On Monday, the Australian share market lost 3.2%. It’s normal to see correlation between stock markets at times like this. As with the US, the Australian market has performed strongly in recent times and the falls we have seen to date are a pullback after a period of very strong performance.

What should I do?

It’s understandable in times like these that members ask what they should do with their super.

 At Tasplan, we always protect our investments through diversification. We also encourage members to consider the benefits of diversification, to be patient and to maintain a longer-term view for investing their super.

Members should also carefully consider their own circumstances and avoid making impulsive decisions in these challenging times.

Members may be tempted to react to short-term market falls by changing investment options, typically by switching to cash. Unfortunately, this often proves to be a poor decision. Moving after the market has fallen means missing out on the recovery. For most people, the best approach is to stick to a long-term plan.

®Registered to Tasplan Pty Ltd 13 009 563 062.

This article contains information or advice that is intended to be general in nature and which was prepared without taking into account your personal objectives, financial situation or needs. Because of that, before acting on any information or advice in this article, please consider whether it is appropriate to your personal circumstances, talk to a financial planner and consider the relevant Member guide, available at www.tasplan.com.au or by calling 1800 005 166, before making a decision about whether to acquire the products.

The trustee of Tasplan Super (ABN 14 602 032 302) is Tasplan Pty Ltd (ABN 13 009 563 062). AFSL 235391.

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