Wall Street is on the cover of every newspaper and will be the topic of every party you attend this weekend -- especially now that the U.S. has seen its AAA credit rating downgraded at Standard & Poor's.
It was an ugly week as fear took its toll on the markets. The Dow Jones Industrial Average dropped 5.8%, the S&P 500 fell 7.2%, and the Nasdaq ended 8.1% lower this week. While the panic level is rising, if you're an individual investor with a carefully chosen basket of blue chip stocks, there are two things you really need to know:
1) Don't ignore your losses.
2) This is not the time to start changing your investment strategy.
Through no real fault of their own, real people lost real money this week. We are now in a market correction. The Dow Jones Industrial Average is down over 10% from July 22nd. Some folks did better than the Dow, and some did worse, but almost everyone took it on the chin. As Lou Mannheim said in Oliver Stone's 1987 classic Wall Street, "It's so bad even the liars are losing money." Closing your eyes and throwing away your unopened brokerage statements isn't going to save your portfolio. Don't be afraid, be aware.
Here's what you have to know about the week that was:
The market has been selling off because of problems in both Europe and the United States. In Europe, the concern is an ongoing contagion related to the collapse of the Greek economy and flaws in the structure of the European Union and eurozone. To boil it down, consider Europe a dysfunctional family, where Germany and France are the respectable parents being asked to repeatedly bail out their reckless children.
In this case the kids are Portugal, Italy, Ireland, Greece and Spain ("The PIIGS"). No one knows exactly what will happen if the economically responsible members of Europe separate themselves from the PIIGS, or even if a separation is possible before an economic collapse.Read More »from Stock Market Mania: What Investors Need to Know