A little bit of history

So just how bad is it out there?  Many people are saying we’re in the worst financial crisis since the Great Depression.  The stock market has been tanking and the overall economy is shaky, but let’s get some perspective…

So far, the Dow Jones Average is about 34% from it’s high right around this time last year.  That means that many people’s 401(k) plans are one-third smaller than they were a year ago.  Bummer, for sure.

Let’s compare that to the dot-com bust of 2000-2002.  Over the course of about a year and a half, the NASDAQ lost about 78% of its value.  That means if you had $10,000 invested in tech stocks (and many people had most or all of their money in tech stocks at the time), you would have been left with only $2,200 at the bottom.  Even at its recent peak last year, the NASDAQ was still down almost 50% from its high in 2000.

Or how about the famous crash of 1929?  The stock market then got hammered for a few days in a row, falling 40% in that time.  But over the next 3 years, the stock market continued to drift down, finally ending down almost 90% from its peak.  Ugly is an understatement.

The bottom line(s):

This is not the Great Depression (things are going to slow down but no one expects massive unemployment and poverty).  And, this too shall pass (have an emergency fund, dollar cost average your other investments, and you’ll be okay).