Stock market isn’t sensational

Television news loves to sensationalize sudden drops in the stock market, no matter how small.

For example, “Your 401k got plastered this week when the Dow dropped 5 percent.” Let’s look at the market more reasonably.

For starters, the Dow Jones industrial average is not the “the market.” It is 30 stocks. Thirty of more than 10,000, or about 0.3 percent of the total market. The Wilshire 5000 makes a far better proxy for “the market.”

Second, losses in your retirement account, 401k or otherwise, don’t impact you today unless you have to withdraw all of your retirement funds today. Most retirees take a little of their retirement funds out each month. What happens to the rest is inconsequential in the long run because, historically, the market has gained an average of nearly 10 percent per year.

If you are retiring next year, the market could easily have gained back all of the recent losses, and more.

As an extreme example, for the rest of us still working, if our retirement accounts went to zero today, and fully rebounded tomorrow, we wouldn’t have lost a penny. That day would be what financial experts call a “paper loss.”

Still, bad news sells.

A few days after Brexit, ABC’s Lama Hasan interviewed Fox Business anchor Maria Bartiromo, who said of the U.S. markets’ reaction to Brexit, “This is all short term ... if you are saving for retirement, you should not be focused on this at all.”

To which Lama Hasan replied, “That advice aside ...”

Clearly, that advice was not sensational enough.

This story was originally published July 8, 2016 at 9:00 AM with the headline "Stock market isn’t sensational."