A happy day-after-Thanksgiving to those who celebrate and merry relief day to those who don’t. Not that anyone escapes the slings and arrows of outrageous financial news.

This morning came the news that the Dow Jones Industrials Average dropped 900 points over fears of the new COVID-19 variant that emerged in South Africa, as The Hill, and others, reported.

OMGOMGOMGOMGomgomgomgoh … my.

Something similar happened at the end of September, with stocks being down a bit for the month. What, no new upsurge in the value of one’s 401(k), which is the poor person’s replacement (if you get even that) for the retirement pension, for which that investment account was designed to only supplement?


TOPSHOT - Meric Greenbaum, Designated Market Maker IMC financial looks up at the board before the opening bell right before trading halted on the New York Stock Exchange on March 9, 2020 in New York. - Trading on Wall Street was temporarily halted early March 9, 2020 as US stocks joined a global rout on crashing oil prices and mounting worries over the coronavirus.The suspension was triggered after the S&P 500's losses hit seven percent. Near 1340 GMT, the broad-based index was down more than 200 points at 2,764.21. (Photo by TIMOTHY A. CLARY / AFP) (Photo by TIMOTHY A. CLARY/AFP via Getty Images)


It’s times like this that there are great lessons to learn. As Ryan Detrick, chief market strategist for LPL Financial LPLA , was quoted in a mini email release, “The new variant news has brought with it a sell first and ask questions later mentality.”

Or, as some market experts have noted over the years, if you spend enough time and listen, when something big seems to happen, it’s the amateurs that sell off first. The true pros wait for the big drop, come in, and buy low with the knowledge that the wave of hysteria most always dissipates within an hour or two, values creep up again, and it’s time to make money.

Most whipsawn markets are far more transitory than the Federal Reserve though inflation would be. There are ups and downs, because the only straight-line financial results you’ll see are the types a Bernie Madoff might sell. They look abnormal because they are fantasy.

To judge any market by the DJIA is a little naïve and silly on the face. There are only 30 companies in the index—all big, but hardly the gamut. Look at MarketWatch’s list of included businesses. Apple’s on, but Amazon, Google, and Facebook aren’t. Coca-Cola KO yes, Pepsi no. IBM IBM in, HP and Dell out.

The index doesn’t measure any business economy other than the one defined by the specific companies on the list.

Even so, with all the ups and down that happen, the DJIA is resilient and moves almost inexorably upward over time. Here’s a graph of its value since 1900, with data from S&P Global Market Intelligence.

Notice the Wednesday closing value: 35,804.38. In that context, a 900-point drop represents 2.5%. Significant? Perhaps. Immense? Not a chance. But financial media get excited over such moves because they seem big if you don’t consider the context and reports are something that will likely grab attention, which means more income from advertising. And we all have to make a living.

Instead of the Dow, consider the S&P 500, a much larger index with greater connection to the overall business landscape. The next graph shows its values from 1930 on.

The S&P 500 opened 36.83 points down compared to Wednesday’s close. Within a few hours, it was down another 72 points. Again, in context, that’s significant at -2.3%, but far from shattering.

The general public is always getting sold something. Trading out at a nervous shiver of the market opens the opportunity for someone to pick up shares at a relative discount, transferring more wealth upwards, otherwise known as the money you just threw away out of fear.

The secret to accumulating wealth is putting money aside and allowing compound interest to work its wonders. Don’t count on making a short-term killing in stocks or crypto or real estate or anything else. Start early if you can, later if you must, but start. And realize you don’t work just for yourself but those who come after you, whether direct descendants or others you might eventually pass value to through your estate. Inter-generational wealth transfer is where the effects over time of compound interest shine like a blazing beacon.

By Erik Sherman, Senior Contributor

© 2022 Forbes Media LLC. All Rights Reserved

This Forbes article was legally licensed through AdvisorStream.

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Tami Romanchuk, CFP, CLU
Financial Planner
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