Who’s not excited about reaching a new high score? It doesn’t matter if it’s your credit score, Uber rating or Candy Crush level (no judgement, just don’t invite me to play). It feels good to be at the top of your game.
On January 25, the Dow Jones Industrial Average, one of the most-watched market indexes, containing stocks from 30 big companies, surpassed a big threshold of its own: 20,000.
What’s the big deal?
Analysts have been anticipating this milestone for months. And thanks to low unemployment numbers and increasing consumer confidence, as well as Wall Street’s confidence in the new administration, there’ve been plenty of close calls.
Finally, after a January 24 close at 19,912.71, the Dow took off Wednesday morning, and closed the day at 20,068.51.
But what does it all mean?
Turns out, not much—mostly because a new record doesn’t actually tell us what the market will do next. Our long-running bull market streak could continue, or the Dow could dip again tomorrow.
But the Dow hitting 20,000 does represent a “psychological mile marker” for investors, says Stacy Francis, Certified Financial Planner and CEO of Francis Financial.
Bullish investors think: the higher the number climbs, the bigger our returns can be. And for an index to reach new highs, the economy must be moving in the right direction and will surely continue to grow, right? Meanwhile, nervous investors may be thinking this means we’ll have farther to fall when the market inevitably swings the other direction at some point.
Well, one thing we can count on is that the market will go up—and down—in the future. The market fluctuates regularly, making gains some days and falling on others, though over the long run it has risen significantly.
But don’t let any enthusiasm or anxiety about potential short-term movements dictate your actions—looking for hot stocks to buy and sell for a quick profit or even cashing out of the market altogether. Both are potentially dangerous moves because they can lead to buying high and selling low…exactly the opposite of what we want to do as investors.
In reality, daily movements—even seemingly significant ones like this—shouldn’t lead to a drastic change in investment strategy at all. “You should not be in the market if you are only focused on the short term,” Francis says. “Long-term investors perform much better over the long run.”
So, do nothing?
Essentially. But you do want to continue investing regularly (regardless of the share price) according to your risk tolerance and long-term goals. And no matter what happens with the market next, know and take comfort in this truth: Historically, the market has trended up and has grown significantly—which means, we’ll likely be rooting for Dow 30,000, even 40,000, soon enough.
January 25, 2017