Daily Financial Market Fluctuations – Are They Important?

News covering daily financial market fluctuations always amuse me. Financial news channels report these financial market fluctuations with great passion and excitement as if our very lives were dependent on them. However, the truth is far less glamorous. Unless you happen to be a day trader someone who attempts to profit by holding financial instruments for only a day these daily financial market fluctuations are relatively insignificant.

If youre like most folks these days – you own a 401k retirement plan or something similar. Since a 401k is a long term investment short term financial market fluctuations actually accelerate its growth this is known as dollar cost averaging. Let me explain, suppose the market goes down a little this week your 401K contribution will be able to purchase more shares (i.e. the price per share might be lower). Now, suppose the financial markets go up next week the shares you purchased the previous week will be worth more. Then the financial market goes back down again and the process repeats itself. Although I could show you this mathematically it would be boring – so Ill ask that you take my word for it.

The only time a daily financial market fluctuation should concern you is when we have one of those ugly days where the financial markets drop by an amount that makes the headlines of newspapers and blogs. However, the MOST important thing about these days is that you NOT panic and please DONT try to sell any type of financial instrument at this time. Dont try to cash in your 401K or any other financial instrument. If you do, you are essentially buying at a high price and selling at a low price. This isnt smart in any business and certainly not with financial markets. If you own a 401K your goal should be to stay the course let the market come back up then youll see the value of that 401K grow higher than it was before the bad day.

So, next time you see the financial markets going up one day and down the next, you can smile, and think to yourself how this helps that 401K to grow. And remember, a really bad down day for the financial markets is the worst time you can ever sell so dont do it!

E Lawrence Welch