The media is all over this headline as the Dow Jones Industrial Average broke through the 20,000 for the first time ever today. It gives the talking heads something to yap about and offer further speculation about the future of the stock market. But, DOW 20,000 is really meaningless in the whole scheme of things. It’s a nice round number and it has a certain ring to it, but, other than that, it doesn’t mean a thing. The bigger lesson learned from DOW 20,000 is that you never know when the stock or bond market is going to make its move. Since the election, the DOW is up 11%. But, from April to November of 2016, the DOW did virtually nothing – notta. Then, all of a sudden, it popped! Hopefully you didn’t become impatient during the April to November period and chase after returns elsewhere. Many investors make this mistake and consequently wind up missing the “pop” when it comes along. Now remember, what comes up, almost always comes down at some point and with similar speed to when it advanced. Look at the bond market as a perfect example. Yields had been at nearly their lowest level in history in November and then all of a sudden, yields on 10 year bonds jumped by a whopping 26%! As a result, corresponding bond prices dropped by 5%! Does that mean we abandon bonds now? Of course not!
The key to successful investing is diversification, discipline, and keeping your emotions in check. If you can do that over time, things will all work out. So, now turn off CNBC and get back to focusing on the important things in life.
Dow Jones from 2012 – Now