Wednesday, March 6, 2013

Dow record high is a feel good moment, but don’t get too excited

    Good Day World!

Today’s topic is yesterdays record high for the Dow Jones industrial average. What does it mean to you and me?

I’m no stock market guru, so I’ve turned to informed sources to help answer that question. The following links will help you see the significance of this record.

But beware, it doesn’t mean we’re on easy street yet. There’s a long way to go yet.

The Dow Jones industrial average just set a record high. Feel rich yet?

The economy is struggling despite Dows all time high 

The Dow, created in 1896 with the shares of 12 companies, comprises 30 stocks. Most are household names: General Electric, Coca-Cola, Boeing, Procter & Gamble and IBM .

Isn’t all this just about the fortunes of Wall Street itself — the 1 percent?

Not if you have a 401(k) plan, an IRA or any other retirement account tied to the stock market.

Index funds, which track the major market indexes stock-for-stock, have soared in popularity over the past two decades because they carry extremely low fees and leave less to the success or failure of money managers.

The most popular of these funds track the Standard & Poor’s 500 index, which hasn’t quite beaten its record but has logged an even more impressive rally since 2009 than the Dow. It’s up 127 percent.

Something else to consider is what’s known as the wealth effect, the idea that people are more comfortable spending money when they feel wealthier. Headlines about the stock market’s record run only help.

“Consumer spending is not what it should be — a 2 percent growth rate, and it should be closer to 3 — but it’s getting better,” Johnson says. “It tends to feed on itself. It makes people feel better.” (Source)

Time for me to walk on down the road…

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