On Wednesday, January 25, 2017, the Dow Jones Industrial Average passed a new benchmark: 20,000. This is a milestone investors have been waiting for since the fourth quarter of 2016. This milestone came on the heels of the NASDAQ also crossing its highest level in history on January 24th at 5,600. Now we are within striking distance of the S&P 500 index making history when it hits 2,300. While this is extremely exciting, at least the media thinks so, what does it mean for you?
It is important to note that these indices are different in size and in composition of companies. The Dow has 30 companies, NASDAQ has over 3,000 companies, and the S&P 500 has 500 companies. This is relevant because even though you hear of this “strong record breaking market performance” you must look at your portfolio and ask “what do I own”? It can be very common for investors to think, if the market is up then my account should be up too! Here is where you need to understand what is in your account in order to have an accurate understanding of the account performance.
For example, a retiree may have more bonds in their portfolio paired with individual high dividend paying companies with a primary focus on generating income. This portfolio may not have any of the companies or very few from the indices thus the growth performance will vary from the market. Knowing what you own helps you sift through what the media is saying about the market versus what you own.
But what should you do when you see this record breaking market performance?
It depends but probably not much. I don’t mean to be vague here but it really does depend. My belief is that change in investment strategy comes from two things: the investor’s needs change and or there is a fundamental change in the market.
If your investments are working according to your plan then doing nothing can be a good choice. You may always check in with your advisor, good advisors proactively reach out to clients, to review how your account is performing in comparison with your plan. During this discussion there may need to be some modification. Simply because the market is up or down should not automatically create a change in strategy.
This is not to say we shouldn’t acknowledge or celebrate market growth but rather keep your perspective of the market in context with your financial plan. If you can then you will likely have a smoother investment experience.
Caroline Hill, Financial Advisor
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).