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Putting the Dow Jones Industrial Average's 666-Point Plunge Into Perspective

By Sean Williams - Updated Feb 5, 2018 at 2:48PM

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The Dow's sixth-biggest point decline in history is actually quite pedestrian.

Move over Freddy Krueger, because you've got company. The nightmare came to Wall Street on Friday, with the iconic Dow Jones Industrial Average (^DJI 0.03%) logging its worst day since Donald Trump took office. The Dow wound up falling 666 points, which registers as the sixth-worst point decline in the nearly 122-year history of the index.

By day's end, according to data from BarChart.com, 91% of the companies listed on the New York Stock Exchange had declined, compared to a meager 8% that moved higher. If you want to point your finger, blame it predominantly on the "tech wreck" and simple profit-taking following a powerful rally to begin the year. Names like Apple (which is a Dow component) and Alphabet, the parent of Google and YouTube, failed to impress Wall Street with their operating results and/or guidance, sending the market, and the Dow, tumbling.

A worried investor looking at a plunging stock chart on his computer screen.

Image source: Getty Images.

Putting the Dow's 666-point plunge into perspective

But if we were to take a step back and look at the bigger picture, today's "plunge" was really quite pedestrian.

Since its formation in May 1896, the Dow's 20 worst percentage declines in history have ranged from a maximum of 22.61% on Black Monday in October 1987, to its 20th-largest percentage decline of 6.98% on Sept. 29, 2008, during the height of the Great Recession. Friday's decline in the Dow represented a mere 2.54% pullback in the index.

Let's put this into even more perspective. In order for the Dow to have had one of its worst percentage days ever (i.e., get into the top 20 of all time), it would have needed to drop by 1,828 points, or an additional 1,162 points from where it ended on Friday, Feb. 2.

A history of the Dow's 20-biggest point and percentage declines.

Table by author. Data source: Wikipedia, The Wall Street Journal, Dow Jones. Data through 2016.

Similarly, while today's 666-point drop dwarfed the 508-point decline on Black Monday back in 1987, we have to remember that the Dow has increased more than tenfold in three-plus decades. Thus, that 508-point shellacking in October 1987 would be equivalent to the Dow losing 5,921 points in a single day in 2018 terms. The Dow wasn't even remotely close to that level today.

Three things to do right now

So, what should investors be doing following the Dow's supposed "plunge"?

First, investors should take a step back, breathe, and realize that down days and corrections are perfectly normal for the stock market. According to Yardeni Research, the broad-based S&P 500 (^GSPC 0.01%) has undergone 35 corrections of at least 10%, when rounded to the nearest whole number, since 1950. That works out to one correction roughly every two years -- and we haven't seen a correction in the major indexes since January 2016.

Secondly, understand that staying the course is going to remain your most profitable option. Though it might seem enticing to dive in and out of the market in an effort to time its pops and plunges, it's just not something that can be done with any accuracy over time.

A smiling woman reading a financial newspaper.

Image source: Getty Images.

For example, in 2016 J.P. Morgan Asset Management released a report entitled "Staying Invested During Volatile Markets" that analyzed the S&P 500's performance over a 20-year period between Jan. 3, 1995 and Dec. 31, 2014. What the report found was an aggregate 555% gain for investors who held throughout the entire period. If investors missed just 10 of the best percentage gains over this 20-year period, their gains were cut to just 191%. If they missed a little over 30 of the best days, their gains would have completely disappeared. And, to boot, a majority of the largest percentage gains came within two weeks of the biggest single-day losses. In other words, stop guessing and stay invested.

Finally, consider adding dividend stocks to your portfolio for safekeeping. Dividend stocks often have time-tested business models and are beacons of profitability. It's unlikely that a management team would authorize the ongoing sharing of profits if it didn't foresee continued growth. Plus, the dividends you receive can help somewhat hedge your downside during a correction, as well as aid in building wealth through reinvestment.

In other words, Friday's plunge in the Dow is only a potential nightmare for those investors who choose to remain on the sidelines.

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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$31,261.90 (0.03%) $8.77
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$3,901.36 (0.01%) $0.57

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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