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Oct 9, 2008 10:39 pm US/Central
Understanding Today's Economy By Looking At Past
(WCCO)
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he Dow Jones is actually made up of just 30 companies. It's actually an index of these companies, like Coca-Cola and Minnesota-based 3M.
AP
Anyone with a 401K or stocks has to wonder: when is the drop going to end?
And once the market hits bottom, how long will it take to rebound?
The answers aren't easy to find.
In fact, it's quite exhausting listening to the talk on television about all the economic bad news. It's even more depressing just looking at the numbers.
Thursday, Wall Street was rocked in the final hour, during a heavy sell-off. Stocks took a dive, down 679 points.
"Well, we're in the middle of a panic," said Dr. Murray Frank at the University of Minnesota's Business School. "Of course, many people are worried we are heading into a deep recession or depression."
Many investors are selling stock they own.
The Dow Jones is actually made up of just 30 companies. It's actually an index of these companies, like Coca-Cola and Minnesota-based 3M.
A 679 point drop in the Dow, like we saw Thursday, represents seven percent of its value.
So, it's actually dropped seven percent, and that's what experts said we need to pay attention to: the percentage gain or drop.
Here's what seven percent really means. If you had $100 invested, it's now worth $93.
"Why does that matter? Well, if you have investments that you are counting on or hoping for, that's an awful lot of money to lose in one day," said Frank.
Every drop and every gain adds up. The Dow has lost 39 percent of its value the last year. For every dollar you had invested, you now have $0.61.
So will the market bounce back?
You might have to look at the decline between 2000 and 2002. It took the S&P 500 -- another index of 500 companies -- a good four years to make up for all the losses.
Can the Dow ever get to zero?
That's a question some people have e-mailed the WCCO. Realistically, no, said the experts. There's just no way, because when you own stock, you own an interest in a company.
Those shares have value, whether it's the materials in the company or the assets themselves, like the buildings or machines.
"It's pretty depressing," remarked Jim Wedge, an older American who's now in retirement on his farm in Carver.
He's now realizing he might need another job, since he's lost money on his investments the last year.
"I might have to go back to work, so I better enjoy it while I can," he said.
(© MMIX, CBS Broadcasting Inc. All Rights Reserved.)
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