Is Dow 20,000 a Reason to Celebrate?
Andrew Adams, Raymond James Market Strategist, comments on the Dow’s historic high as of January 25, 2017, and whether this milestone will have a long-term impact on markets:
“In many cases, the amount of attention something gets is inversely related to how important it actually is to the markets. In other words, the more the media and weekend investors talk about something, the less impact it generally has on stock prices. The Dow Jones Industrial Average hitting the 20,000 milestone is a perfect example of this phenomenon… Dow 20,000 certainly sounds great, but there are a few things to keep in mind before putting too much emphasis on it. First, remember that the Dow (DJIA) consists of just 30 U.S. stocks. It's not as representative of the broad market as it used to be, which is why the S&P 500 [which consists of 500 U.S. stocks] is more widely used for benchmarking purposes. [One example of different performance in these indices: the S&P 500 is up approximately 6% since Aug. 24, 2016, while the Dow is up approximately 9%.] Also, as the level of the Dow rises, each 1,000-point threshold represents a smaller and smaller percentage change; therefore, these milestones have less and less significance. . . There is nothing wrong with putting on your party hat to honor Dow 20,000, but it should be viewed as a stepping stone rather than a finish line. It likely will have no effect on the markets in the long run, and it shouldn't be something to be overly concerned or excited about.”
The Laurel Wealth Planning Take
The Dow hitting 20,000 puts it up almost 1% as of today, January 25th. But, as we all know, diversified portfolios generally include many other types of investments, and an important part of our investment mission is to match your investment strategy to your situation, preferences, and goals. Some of your investments have the purpose of growth and some the purpose of protection. Each investment has been carefully chosen and recommended for you with the above criteria in mind.
Our outlook continues to be for potential growth in the U.S. and international stock markets over perhaps the next two years, but with substantial volatility and potential surprises along the way. A proper eye toward growth and a proper eye toward protection, i.e., proper diversification, remains the watchword.
It is also important to keep in mind that investments are just a tool that serves a purpose, i.e., to live life on your terms with the security and the choices you prefer. Here at Laurel Wealth Planning, as you may know, we don’t get too excited about market highs or lows. We are simply continually looking for the strategies and opportunities that help you achieve your goals. Those strategies include investing, but also tax reduction (working in collaboration with your tax advisor), cash flow planning, proper insurance coverage, and estate planning (in collaboration with your attorney). As many of you know, there are so many areas upon which we can focus together to build and maintain the choices you prefer.
Please let us know your questions or comments. And, as you speak to friends and family, please know that we are pleased to help others. Generally, our new clients need some help sorting out financial complexity often brought about by a major life transition (retirement, death of loved one, divorce, etc.).