The 10,000 mark on the Dow has been called a “psychological milestone.” Why is the Dow doing so well when other numbers are off, such as high unemployment figures?
The Dow at 10,000 is, for some folks this time, more of a psychological milestone. Keep in mind the Dow first passed 10,000 March 29, 1999 — this time it’s being called Dow 10,000 2.0. The psychological meaning is important. But technically there is little, if any, meaning this time. If the market (Dow) is a gauge of what people feel about the future of the economy, it is correctly reflecting it now. This is where the disconnect is between other numbers, like unemployment, which are lagging indicators that tell us where we have been. Looking forward, the market hopefully tells us where we are headed.
Wealth Management specializes in something called restylement as opposed to retirement. What does a healthier Dow mean for most people’s restylement? Does the health of the Dow take investment pressure off of people?
A healthier Dow does take some investment pressure off restylees. Keep in mind restylement is a journey, not a destination. Years of planning and sound financial decisions go into when someone can restyle. Our mission is to enable our clients to achieve their financial and life goals. We realize this by providing solutions tailored to satisfy the concerns of outliving income and maintaining quality of life throughout restylement. So while a healthy Dow does take some pressure off folks, a solid, well thought out investment policy is far more important to investment health than the Dow.
Is it correct that there is optimism in diverse asset classes like fixed income, equities and others? What does that optimism mean for the average investor?
When there is optimism everywhere, the average investor usually ends up getting hurt. As noted investor-philanthropist Sir John Templeton said, “The best opportunities exist during points of maximum pessimism.” So, in a contrarian way, I am optimistic about the markets, though trying to gauge short-term moves in any market is a dicey situation at best. We remain realistically optimistic about the future of our clients.
What’s the worst thing people could do right now with this apparent resurgence in the Dow?
The worst thing people can do is just plow money into the stock market because of the recent surge in the Dow and expect or count on similar returns of the last six months. Yet, that is what most folks will end up doing. If you have a firm handle on your cash flow, debts, taxes, and a decent cash cushion then you can match up investments to your goals. Long-term goals over 10 years can be made up primarily of stocks. Shorter-term goals of five to 10 years should be a mix of stocks and bonds with 60/40 closer to 10 years and 40/60 closer to five. Anything less than five years needs to be primarily in fixed income.
Of course analysts look at this from different sides. Is the Dow a bubble ready to pop again?
The Dow bubble surely will pop again — when? I’m not sure. As JP Morgan famously said, “They will go up and they will go down.” The point is, the money you need to spend today cannot be in the market. And anyone who claims they know when the Dow bubble, or any bubble for that matter, is ready to bust would be very famous and very rich and we would all know their name. Can you name one?
What does the price of gold have to do with any of this?
The price of gold has little, if anything, to do with this other than being a part of a diversified portfolio, with an allocation to commodities.
