The Dow hits a new record: Now what?
Provided by RBC Wealth Management
and Dave Dupont
The Dow Jones Industrial Average recently hit a new record, closing over 17,000. Should that affect your investment decisions?
Commentators talk about the “psychological barrier level” that the Dow crossed going above that number, but what’s perception and what’s reality?
Here are some facts to keep in mind before letting the Dow level dictate your financial activities:
• It’s only one index — and it’s not representative of the overall market. The Dow tracks only 30 “blue-chip” companies and for a variety of reasons excludes some of the most valuable American companies while including companies worth far less. By contrast, the Standard and Poor’s 500 includes — you guessed it — 500 separate companies and therefore is a statistically more valuable indictor of overall stock trends.
• Remember the Nasdaq — or not. If you were paying attention to the stock market in the heady days of the tech bubble, you may remember seeing the Nasdaq climb to record levels. Investors were excited about the so-called “New Economy” and believed that the tech-heavy Nasdaq was the place to invest. The index doubled in value in a year and at its peak in March 2000 reached 5,132. But as reality dawned on investors that many of the companies of the dot-com revolution were propped up by venture capitalists rather than revenue streams, the bubble burst. By October 2002, the Nasdaq bottomed out at 1,108. In 2014 as the Dow was reaching 17,000, the Nasdaq was at about 4,400.
• Investing requires a long view. The takeaway here is not that you should run the other way when an index hits a new high nor should you let the escalating prices be a reason to invest everything in the market. Rather, you need to look closely at both the overall economic reality and what developments, if any, may require a change in your financial plan.
The financial world is far too complex to be summarized by a single figure. Even a close study of all the widely followed economic indicators — gross domestic product, consumer confidence levels, unemployment levels, housing starts, wholesale prices, balance of trade — can only hint at the economy’s current status.
This article is provided by Dave Dupont, a Financial Advisor at RBC Wealth Management. RBC Wealth Management does not endorse this organization or publication.
RBC Wealth Management, a division of RBC Capital Markets LLC, Member NYSE/FINRA/SIPC
