THE COLOR OF MONEY
Cancel joy about uptick in the Dow
Someone asked me if I was excited when the Dow once again hit the 10,000-point mark. Nope.
It was October 2008 when we last saw that five-digit number. Now, on Oct. 14, the Dow Jones industrial average again closed above 10,000—10,015.86 to be exact. Should we be cheering, or remain cautious about this recovery?
First, understand what the Dow is. It is the most widely used indicator of the overall condition of the stock market. It’s also just a snapshot comprising the 30 biggest and most prominent blue-chip stocks. The first time the Dow hit the 10,000 benchmark was in 1999, and its all-time highest close was 14,164.53 in 2007. So what should we think of this most recent development?
“It is a true nonevent,” said James R. Cotto, a senior vice president with Cotto &Padovani Wealth Strategies Group at Morgan Stanley Smith Barney. “It is nice that it is moving in the right direction, but it is relatively meaningless from a financial- planning perspective.”
Dallas Salisbury, the president and chief executive of the Employee Benefit Research Institute, is not in awe.
“Extraordinary losses or gains should never excite the average individual investor in a positive way, as they underline the irrationality of the markets and the absence of any individual control over the markets,” Salisbury said. “Winning or losing, it is more and more like being at a table in Las Vegas.” He said that now, more than ever, individual investors should be trying to decide how much they can afford to lose in the stock market and how much of their money needs to be safe and not subject to big swings in value.
Don Blandin, president and chief executive of Investor Protection Trust, had a similar caution. “If you have been sitting on the sidelines since March because you have been scared to go in the water, don’t think this ray of sunshine has warmed the surf much since the investment tsunami,” Blandin said. “Investing and risk go hand in hand. Make sure you have learned or relearned the basics of saving and investing to make good decisions and protect yourself.”
It’s good for investors to have some recent and somewhat sustained relief from the wide and volatile swings of the past, said Syrinda Elizabeth Paige, a certified financial planner with the Lighthouse Group at Morgan Stanley. “Most importantly, investors should stay focused on knowing their own numbers,” Paige said. “When I say their own numbers, I mean knowing what rate of return they need to live comfortably based on their own personal goals, their time horizon and expected expenditures.”
Ernest Burley, a certified financial planner with Burley Insurance and Financial Services based in Bowie, Md., is upbeat about the 10,000-point benchmark. “It’s always exciting to see positive returns,” he said.
But Burley said investors should be cautiously optimistic. “I don’t think there should be blind excitement and thoughts of being out of the woods and we’re back to high returns again,” he warned. “Enjoy it for what it is—a current uptick in the market.”
Burley said that individual investors should see recent gains as another wake-up call that they have to have a financial plan. He says you should ask yourself three basic questions:
• What is the purpose of the money I’m investing?
• What is my time horizon?
• What is my risk tolerance? “I don’t think this upswing should
prompt people to make changes to their portfolios based on the upswing,” Burley said. “If a change is made to a person’s portfolio, the change should be based on making sure the money is properly allocated and diversified.”
As the market climbs (or falls again), there will be a lot of metaphors used. For me, watching the Dow is like riding a roller coaster. The climb up is exciting. But then you hit the top and, in seconds, you’re being plunged downward or sideways or up again. It can be exhilarating. In my younger years, I would laugh and scream. Now, when I go on a roller coaster, I feel a little sick to my stomach, so I only ride occasionally.
When it comes to the Dow, I don’t pay much attention to the daily fluctuations. I can’t stomach that day-to-day ride. Besides, who needs all that stress?
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