Nasdaq Halt And Index Fund Investors

It was a madhouse. Traders said they’ve never seen anything like it. Regulators snapped into action. President Obama was immediately briefed. Long-term index fund investors yawned.

A technical glitch on Wall Street’s second-largest stock market last Thursday caused a three hour shutdown on the Nasdaq. The halt affected other markets as well. Securities and Exchange Commission Chairman, Mary Jo White, said the “interruption in trading, while resolved before the end of the day, was nonetheless serious and should reinforce our collective commitment to addressing technological vulnerabilities of exchanges and other market participants.”

I asked Taylor Larimore, a long-time index fund investor and the founding member of the Bogleheads how he reacted to the news. Larimore replied, “I read the headline about a Nasdaq problem but didn’t bother to read the rest. After 63 years of investing, I’ve learned the importance of structuring a low-cost, tax-efficient, long-term investment plan—then do nothing except harvest tax-losses and rebalance when necessary. I try very hard to ignore the noise!”

Blogger, author and Wall Street Journal contributor, Mike Piper, agreed, “I would be surprised if most long-term index fund investors with appropriately diversified portfolios even noticed.”

Author and financial adviser Allan Roth had no concern. He said, “It was a complete non-event and I was quite confident none of my clients would call. They are investors, not speculators who trade.”

Technology is great, but it’s not perfect. Hiccups happen and short-term disruptions in the markets occur. I don’t believe it’s possible to make such a complex system completely fail-safe.

Shutdowns are a serious concern for traders, brokers and those tasked with the continuous and orderly functioning of securities markets, but they are not a concern for long-term index fund investors. There is no rush to do anything. In the words of Jack Bogle, when something strange happens, “Don’t do something, just stand there!”