The last few weeks have been full of headlines reading: “Dow headed for record high, Dow closed at record high, Dow set to open at record high,” etc. As of March 25, the Dow has hit a new intra-day high nine times already. But what does all of that really mean for you and me? Just like every single other day of the week, there seems to be conflicting ideas about what investors should do. The always gloomy Pessimists have been busy making comparisons between the new Dow high and the bubble of 2007 and have been proclaiming a coming slaughter of the equities markets. On the other side of the spectrum we have the Sideliners—people who have been sitting in cash since the crash of 2008—now jumping at the chance to throw everything back into stocks. Which side is correct? Should we be trying to take advantage of the current bull market by going whole heartedly into stocks? Or is this the time to run for the hills and sell while we still can? As usual, Mike, Linda and I fall somewhere in the middle.
The problem with “record highs” is they are completely arbitrary. The Dow set a record high in 1973 of 1,051. It set another one in 1988 at 2,722. Then it set a new high practically every year of the 90’s. Looking at the history of the Dow over the past 100 years we can see that while prices fluctuate, the general, long-term move of the market has been up. Every single one of the record highs we see on the chart below has been replaced by new record highs! We also see a number of pull backs on our chart. Many times when the market reaches a new high it will go through a “correction” where the euphoria wears off and investors pause to re-evaluate values. This is normal. We almost always see at least one significant correction each year. Keep in mind that a standard correction can be as much as a 10% pullback in the market. Since I’m not into crystal balls and I’ve yet to meet anyone who can consistently time the market, we have no idea when our current bull market might end or a correction might begin. Does that mean you should dump your life’s savings into equities? No. Does it mean you should sell all your stocks and buy bonds? Definitely no. A long term, well-diversified portfolio and investment strategy isn’t affected much by the day-to-day movement of the stock market.
Whether the market is at an all-time high or all-time low doesn’t really matter. We see no reason to panic in either scenario. We are constantly working to stay on top of what the markets are doing and what investment strategies are most appropriate. We’re here to keep you on track no matter what the markets are doing.
1 Park, J., 2013. NBC News Business [Online] Available at: https://www.nbcnews.com/business/stocks-finish-lower-cyprus-euphoria-fades-1B9053925
2 Stockcharts.com, 2013 [Online] Available at: https://stockcharts.com/freecharts/historical/djia1900.html
Serenity Melnick is a Registered Representative offering securities through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Legacy Wealth Management, LLC and Cambridge are not affiliated. Cambridge does not offer tax advice.
Copyright ©2013 Serenity Melnick. All Rights reserved. Commercial copying, duplication or reproduction is prohibited.