Today the stock market took a fairly substantial drop in value all around the world markets. When I was reading comments by people about this event, I was taken by how so many were completely struck by the “disaster” of it all.

That made me think, people basically don’t understand what the markets mean in their world of 401K and other potential investing. Rather, they see this as one more strike against them in their ability to retire with any level of comfort. So I thought I’d write down some of my experiences over the past 30ish years with finances.

First off, I’ll start today with the stock markets. There is not one market, rather there are many markets. They exist in all the advanced countries and all of them control the sale of equities in public companies. Those equities or stocks more or less reflect the overall value of a company. Its ability to make money and its potential for growth. More or less. “Panics” like today offset that to an extent.

Given today’s drop in value of about 2% overall, one might think the stock market is a bad investment. However, over time, the stock market has an upward trend in value across decades. Buy low, sell high, as the saying goes, could simply be translated into buy today, sell later. Because at some point later, the stock will be worth more. At least in aggregate. By that I mean, buy what is called an index fund. One that tracks the overall market. So when the “Dow Jones Industrial Average” goes up, your “stocks” go up. Same with the S&P 500.

So what does that mean. It means in your 401K, buy general stocks in the US and Global funds. Those funds will go up over time. The longer you have before needing those funds, the more likely you will see the typical 6-7% increase in value year over year. Even when you take the devastating drop in 2009 into account, 10 years from 2005 to 2015 gives us about a 5% gain, year over year on average. Considering interest rates are less than 1/2% that’s pretty darn good.

So the idea isn’t to try and time the stock market, rather the idea is to get into the market, continue buying in it, and letting the stock run for the long term. That’s easy to do if you are 25, almost impossible if you are 75, but still a good goal in between.

If nothing else, don’t panic, the markets will recover, indeed the Asian markets are up already (It’s Tuesday morning in Asia). So be calm, buy now if you can as the markets have been down for quite a while, but do not sell if you don’t have to. The markets will go back up.

More to come. Hope you enjoyed.