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Sound Advice: August 21, 2024

Dow Jones Industrial Average: Up 50 times in 50 years

Please feel free to find a better investment than the stock market, but judging by the results of the latest half century, you’ll be hard-pressed to come up with a better option. 

Back on June 28, 1974, the Dow Jones Industrial Average closed at 779.72, a level that’s occasionally been exceeded by one-day movements of that index in recent years.  Since that time, much has taken place: the collapse of the Soviet Union, the war in Vietnam, two oil embargoes, the 9/11 attacks, Brexit, Covid-19, the rise of the internet, smartphones, AI, and the rise of social media, just to name a few.

What all of this adds up to is an average annual gain of 9.76%, by most standards a hefty advance.  Yes, that includes inflation, which was about 3.8% per year over the period.  So the real return of about 6% was still an impressive achievement, especially considering the seemingly endless offerings of what are billed as special investment opportunities that most definitely are anything but. With very rare exception in these cases (none of which I’m aware of), the sole beneficiaries of these “deals” are those who are offering them.  The reality, of course, is that if they were any good, there would be no need to get other people aboard.

What has taken place over the latest five decades turns out to be an I-told-you-so.  Back in 1999, a book entitled The New Strategy for Profiting from the Coming Rise in the Stock Market was published.  That was just before the dot.com collapse of 2001-2002.  Yet, the authors, James Glassman and Kevin Hastert, argued that stocks were significantly undervalued and would rise to 36,000 within the next few years.

They were wrong on most counts.  After the book was published, the market plunged and it took 22 years after that date before the Dow reached the level they forecast.  But it did reach that level and it seems more than likely that the Dow will reach 100,000 well before another 50 years pass.

The simple solution for taking advantage of this prospect is to build and maintain a portfolio composed of at least three key components: a total domestic equity index fund, a total domestic bond index fund, and a total international equity index fund.  Such an approach keeps the costs low, provides broad diversification, and maintains participation in a wide range of asset classes and individual holdings.

N. Russell Wayne

Weston, CT

Any questions: please contact me at nrwayne@soundasset.com

203-895-8877

www.soundasset.blogspot.com

 

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