Remember when you were a kid and you heard the neighborhood bullies were around the corner, so you dropped your lunch pail and ran the other direction to avoid trouble? Well, that happened recently in New York, in a manner of speaking. Due to concerns with the global economy, investors played to their fears and dumped all of their stocks back into the market--an event that caused the Dow Jones index to drop 512 points Thursday and 634 points the following Monday, the latter marking its worst day at the stock exchange since the 2008 financial crisis.

While the Dow has risen 2% since these events, it doesn't mislead the fact that we're likely not headed to the picturesque recovery everyone hoped for. Employment (now at 58.2%) is still lower than it was after the last recession ended, and it's possible a new one could be coming in the future.

So what does this mean for you? Well, depending on your standings in the market, it could mean one of three things.

• If you haven't invested yet, this little blunder should show the risks of short-term investments and the security of long-term investments. When the numbers started dropping, investors bought up low-risk assets like Treasuries and gold. You'll likely not see quick spikes in profit, but the opportunity for safe investing is definitely available, even in times of financial crisis.
• If you're already investing, you've just seen a prime example of why the market is a total gamble. Nothing is certain--unless you're conducting insider trading, where the only sure things are lots of profit and lots of jail time--and index fluctuations can mean a total loss at the drop of a hat. It's also an indicator to stick with your stock choices. Markets always fluctuate. It can be wise to keep with investments and not dump them at the first sign of trouble.
• Or, regardless of whether you've started investing or not, the current market situation shows how important diversification is. If you plan your own investments or consult with a broker, push for a mix of short- and long-term investments--including areas outside of stocks, like real estate and mutual funds--to yield a safer combination that can withstand tough times in the market.

On a positive note, oil is down to $87 a barrel. At least you can expect lower gas prices for driving to your broker's office if the Dow drop sent your portfolio into a tizzy.

--Chris

Photo taken from this photostream and used with permission of a Creative Commons license.

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