Last night the Dow futures went down almost 900 points. People were writing all over the internet about potential gloom and doom that might happen if the stock market were to continue on this pace. (Thankfully the market is back up to a new high at the time of this writing.) I went to bed without a worry in the world—I couldn’t care less if the stock market goes down or if it goes up by a large amount on a day to day basis. I do care if it goes up over the long term, which it has over its ENTIRE HISTORY.
I was able to sleep like a baby for two reasons: 1. The Dow isn’t a good representation of the “stock market” and 2. The day to day ups and downs of the stock market are just noise and have little to do with the LONG TERM trend of the stock market.
Let’s look at the first point. When people talk about the stock market they often speak of the Dow, which stands for the Dow Jones Industrial Average. It is a collection of 30 companies in the USA that are traded the most in America and are thought to be good investments by a group that oversees the average. Is this true? Does the Dow represent the overall us stock market? Yes and no. It contains no companies that are involved in transportation businesses or utility businesses. The Dow only has very large companies but doesn’t contain any small or mid-sized businesses. This misses a large part of the stock market in the United States. There are over 4000 companies in the United States that are traded in the stock market, surely 30 isn’t a good representation. So what is a person to do? Simply buy a mutual fund that represents the entire market. There are mutual funds and exchange traded funds that allow you to purchase part of every publicly traded company in the US stock market.
In all fairness, last night the entire US stock market was down as represented by the Dow, the NASDAQ, and the S&P 500 indices. Together these 3 indices do represent the vast majority of the US stock market (~3700 companies). While I am glad that the stock markets have come back to even, I would still be okay if they had continued to lose today because I expect that there will be good days and there will be bad days as an investor but I expect that overall the stock market will have a increase over my investing lifetime.
This brings me to point number 2 in that investing is not a sprint it is a marathon meaning that you don’t win the investing game (meaning having a successful retirement savings and being able to meet your financial goals) in the course of a day, month, year or even a few years. Investing is best viewed through the perspective of a 30-40 year investing career. Here is a link to graphs showing the stock market trend (as represented by the S and P 500) over many years I found on the economic greenfield website:
As you can see stocks go up over time. There are downturns even for a few years at a time, but the overall trend is up over time. The only way that most people can accomplish their financial goals is to invest in the stock market over the course of their working career (meaning 30-40 years). Don’t be persuaded by all the commercials you see on television promising easy stock trades for $, or having the best information/analytics so you can be a successful day trader as all experts do not think this is the way to approach the stock market and makes investors focus on the day to day changes of the stock market rather than focus on the long term trends. Don’t take my word for the benefit of running a marathon when it comes to investing rather than running a sprint by jumping in and out of the stock market based on good or bad news. I will leave you with the words of John Bogle the founder of Vanguard:
“The historical data suggest one conclusion with unusual force: To invest with success, you must be a long-term investor.”—John Bogle
All the above should be considered as for entertainment purposes and should not be considered to offer legal, tax, or investment advice. We encourage you to obtain professional legal, tax, or investment advice prior to acting on anything contained in this or any other entertainment article.
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