DOW at 30K

December 22, 2020

Ask a group of people to raise their hand if they think they’re a below average driver and hardly anyone will. Most people think everyone else has a driving problem. However, statistically, about half of the drivers in America are below average!

I tell people that behavior is the biggest determinant as to whether or not they will be successful as an investor. In my opinion, behavior is the single most important aspect in any endeavor. When it comes to investing, personal behavior will sidetrack an individual quicker and more often than any other outside influence. Everyone tends to agree with this, but much like our driving, everyone thinks the other person has the problem! I have clients, friends, and family all tell me the same thing, which is that they won’t panic in a stock market downturn. And maybe that’s true but, what about during a stock rally?

If you’ve ever asked anyone if the market is too high or decided to hold cash because you are waiting for the “crash” then you have a behavior problem. Clients tell me stories about pulling their money out right before 2008 because it “felt right”. They didn’t get the money back until 2012. This doesn’t need to be the case! You don’t need gut feelings. You don’t need to try and predict the future, or time the market, or wait for a crash.

Why not? 

For starters, I would ask you, “Which market are you talking about”? The Dow Jones is one index. What about small companies, emerging markets, international small companies, international large companies, and micro caps, and on and on? There are several different markets and they aren’t all correlated. They don’t all move in lock step with each other. 

Even if we did stick with the Dow Jones because it is the market most see on the news, the Dow Industrials at the time of this blog post is pushing 30,000. Let that sink in. The Dow at 30,000! How can this market NOT be too high? 30,000? That’s insane. You should wait until it drops again to whatever point makes you happy then invest. But spoiler alert, that is not investing. That is what we call gambling. Four years ago in 2016, the DOW was pushing 20,000 and people thought that would never happen.

Investing is different from gambling. If you want to be a trader and try to time markets, then by all means go ahead, speculate and gamble away. But if you are investing your money, you should adopt a long term view. I would say a minimal time frame is 10 years. Do you know what the Dow will be at in 10 years? Me either. But if you believe the “experts” who tell you stocks get you 10% a year (in a perfect linear fashion with no ups and downs…yeah, I’m laughing, too), then the Dow will be over 75,000 points. Check the math on your own. In 10 years, assuming 10% a year in return, the Dow will be about 77,000. With this context, does 30,000 sound too high? In 10 years, you will want to wait until it crashes to 30,000 so you can invest and reap the rewards. Why try and time that? 

By the way, I know you. I understand you better than you think because you are already wondering where the Dow would be if it doesn’t earn 10%. Well, here’s an answer. Let’s say it only earns 6% over the next 10 years. That puts the Dow at over 53,000.

You want to really lose your mind? Dow at 96,000. That happens in 20 years at 6%.

Is the market too high right now? No. My point is, it’s always a good time to invest. Always. But only if you are investing and not gambling. Only if you will endure the movements of the market, or in other words, BEHAVE.

And stop driving so poorly.

Dow Jones Industrial Average is a widely used indicator of the overall condition of the stock market, a price-weighted average of 30 actively traded blue chip stocks, primarily industrials, but also includes financial, leisure and other service-oriented firms. Indices are unmanaged, and one cannot invest directly in an index. Past performance is not a guarantee of future results. Data and rates used were indicative of market conditions as of the date shown. Opinions, estimates, forecasts and statements of financial market trends are based on current market conditions and are subject to change without notice. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer, or recommendation to purchase or sell a security. Past performance is not a guarantee of future results. | 2023-158307 Exp. 07/25

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