News that the Dow Jones Industrial Average is down several hundred points sends shivers down the spine of even the most weathered investor. Such drops, while infrequent, can be scary because it’s impossible to predict how severe or long-lasting losses will be. And even if you trust the market will eventually rebound (as it always has), it’s hard to watch the value of your investments shrink before your eyes.
In the immediate term, people will argue about what to call it — a crash? A correction? Leave the vernacular to others, and instead understand what’s causing the market to fall. This knowledge may not bring your money back right away, but it could help you prepare for the market’s next move up or take advantage of lower stock prices in the meantime.
Defining a drop in the stock market