What Should You Do If Dow Jones Continues to Drop?

Roger Dalkin had a lot of calls to make Tuesday morning.

He expected most of them to be pretty similar.

Dalkin, a financial advisor for Mutual of Omaha and member of the Greenfield Chamber of Commerce, has a number of worried clients asking “What do I do now?” following Monday’s drop of more than 600 points in the Dow Jones Industrial Average.

“What I’m telling them is investment is for the long-term,” Dalkin said. “Retirement is for the long-term. Don’t react emotionally. Don’t panic. It’s the kind of thing where you have to just ride it.

"If you’re a 20-something and a majority of your investments are in stocks, you don’t get out. By the time you’re ready to touch that money, (the Dow Jones) could be 15,000, 20,000, even 25,000 20 years from now. It’s not about today, it’s when you’re going to need the money. If you need the money tomorrow, you probably shouldn’t be in stocks."

As of noon Tuesday, the Dow had seen a moderate rebound from yesterday’s tumble, a fall believed to be largely reactionary to a number of factors, including the Standard & Poor’s Friday downgrade of the U.S. government’s credit rating.

Dalkin said the stock market also reacted to the debt reduction bill that many did not feel was strong enough, and the overall economy, which appears to be slowing down again.

President Barack Obama's speech yesterday, during which he blamed Standard & Poor's downgrade decision and political gridlock for yesterday's Wall Street drubbing, did not go far enough to calm people's fears, according to Dalkin.

"He went on yesterday and said, don’t worry about Standards and Poor's, they don’t know what they’re talking about," Dalkin said. "That’s not what people wanted to hear. They wanted some action."

Dalkin said even with yesterday's sixth-biggest point drop in history, investments are better off today than they were one year ago.

"The losses are just in paper at this point, and you’re still ahead of where you were last year," he said. "If you sell now, you’ll lock in the losses that have just taken place. Because all the losses you have now are paper losses; they’re not real."

Dalkin said the best way to protect yourself against days like yesterday is to diversify your portfolio. He pointed to yesterday's rise in bonds as stocks took a dive. He also said to avoid undoing years of planning through reactionary measures.

"Throughout history, there have always been ups and downs, but the trend has always been upwards," he said. "If you’re (retirement) target’s 20 years out, that’s what you look at. If it’s 2 years out, you make adjustments."