The stock market has enjoyed an extended period of strong performance dating back to the end of the last bear market in early 2009. While stock market performance can be measured in a multitude of ways, the Dow Jones industrial average has surpassed several milestones by thousands of points. by 2017: Dow first surpassed the 20,000 mark on January 25, before crossing the 21,000 mark just over a month later. Then, at the beginning of August, it crossed the 22,000 mark. At the end of August, the seemingly smooth rally of the shipping market hit several bumps. Although no one can predict the future, market strategies and analysts suggest that we could see some market volatility in the coming months. So how do investors keep all this in perspective while trying to manage their portfolios? Here are three points to keep in mind when pursuing a scholarship:
1. The real value of each underlying move in the Dow Index decreases as the market grows
While the Dow Jones average is often used to provide an overview of the state of the market, the index includes the company’s top 30 shares. When the Dow Jones industrial average rises above, the real impact of each change in its price is reduced. For example, when the Dow crossed the 2,000 barrier in January 1987, it marked a notable increase of 100% from the level of 1,000 first reached almost 15 years earlier. By contrast, when the Dow moved 1,000 points to 22,000 in March-August this year, it was only a 4.5% increase.
The same perspective applies to day-to-day market movements. The stock market comes to the fore when the Dow Jones average moves up or down 100 points in a day. 20 years ago, when the Dow stood at about 8,000, a move of 100 points in the market represented a change in value by 1.25 percent. Today, a move of 100 points is equivalent to a change of less than half a percent. In short, 100 points in the Dow Jones industrial average does not mean what it used to be.
2. Markets can withdraw from record levels
Just as stock markets can grow, history shows that they too can fall. In the spring of 1999, the index reached 11,000. It grew more a few months before the emergence of a severe bear market. The Dow fell to 7,286 in 2002 before returning to 11,000 in 2006. Similarly, the market topped 14,000 in 2007 just before another severe bear market began. It decreased and did not reach this level until the beginning of 2013.
No one can guarantee what will happen to stocks in the next week, month or year. Stock markets are unpredictable in the short term, because fluctuations are part of market behavior over time. Price variations are a reality for stock investors, but over time, the shares have recovered historically.
3. The indexes may not be representative of your portfolio.
While indices often generate securities, their performance may not be an adequate reflection of their portfolio. Emotions are high when there are market changes, but don’t be afraid to get the best of you. Stock market changes can act as a reminder to review your financial position, ensuring that your asset mix matches long-term goals. Remember that the most important factors in the success of your investment are your goals, the time you need to invest, your risk tolerance, and your commitment to saving.
The reaction to the stock market or speculation about events that may happen in the future could lead to an interesting conversation at dinner, but remember that it is not a proven investment strategy.
If you want help aligning your financial plan with your stock market feelings, consider working with a trusted financial advisor. A financial professional can give you an objective perspective and help you focus on your financial goals.