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Welcome to the first edition of Currently....with Craig Wealth Advisors

Our thoughts on recent events, economic topics, news impacting your financial situation, the books we are reading and our favorite quote - currently of course!

One of the most upsetting things to investors is the emotionally charged, non-stop market commentary. Many updates are described to grab the listener’s attention: the Dow plunged, the Nasdaq soared, etc. I rarely hear a commenter say the boring “up” or “down.” In the new age of fewer pensions and delayed social security, it’s difficult to feel confident in one’s investment choices when the radio, tv, social media and phone apps all utilize “loaded language.” So, let’s take a look at the indices being reported and what it might mean for an individual’s portfolio.

The DJIA (Dow Jones Industrial Average) is the index I see most frequently quoted in the media. Hearing, “The Dow hits a high” or “The Dow sinks in late trading” are common. Yet, I believe, both comments can result in listeners feeling discouraged. If the Dow is hitting a high, the intimation is that it must be time to go down. If the Dow is “sinking,” it implies that all investor accounts must also have sunk that day.

I have clients call and lament “the Dow” or want to make changes based on the DJIA. I recently asked a client in my office if she knew how many stocks make up the Dow? She didn’t. I replied 30 and watched her mouth drop to the floor. She asked, “You mean if I didn’t own those particular 30 stocks, my portfolio might not have gone said up or down?” Yes, ma’am, that’s exactly what I mean. Her next question, “Do other people know this?” Well, I thought so, but now I’m rethinking it.

During a review this week, a client requested that I sell all of his stocks because they were “as high as they will ever go.” I asked what data made him think so. He replied, “the DJIA is at a high.” Wanting to test my hypothesis again, I inquired if he knew how many stocks were reflected in the Dow number. He chuckled and said, “Yeah, I know, I know.” When I persisted, he said, “A lot.” Again, I informed him there were 30.  While there are lots of lessons to be learned here, let’s illuminate two.

First, Charles Dow invested the DJIA in 1896. Stock and economic information wasn’t so readily available 123 years ago as it is today. His development of this index was meant to reflect a general economic “temperature” with the selected companies indicative of the US economy in general. (The initial Dow was composed of just 12 companies in the railroad, cotton and industrial sectors.) The index expanded to 30 companies in 1929. There are about 7,000 publicly-traded companies in the US today.

Second, I believe that most, if not all, investors have better portfolio allocations than simply investments in the DJIA. International stocks (one index here is the EAFE), fixed income instruments (sometimes reflected by the ML Aggregate Bond index) and small cap stocks (tracked by the Wilshire 5000) exist in most client portfolios. Additionally, there are sometimes broader allocations to emerging markets, private equity, real estate, commodities, alternatives and cash.

While there may be historical reasons for continuing to publish the DJIA, it might not really be particularly relevant to individual investors!  And, certainly, shouldn’t be something to raise blood pressure or stress if you really don’t own those 30 stocks!

A helpful conversation to have at your next visit with your financial advisor is to inform yourself about your asset allocation. How much of a weighting do your investments have to US stocks? International equities? Bonds? Perhaps your individual portfolio might be more correlated with changing interest rates rather than the DJIA?

Plunging and soaring is no fun for anyone. Ask a few questions about your investments and the DJIA.

Information is empowering….at least that’s what we are currently thinking. 

The indexes mentioned here are unmanaged and cannot be invested into directly. Past performance is no guarantee of future results. All investing involves risk, including the possible loss of principal amount invested. No investment strategy can guarantee your objectives will be met. Your portfolio should be invested in accordance with your risk tolerance, time horizon and investment objectives. Raymond James is not affiliated with Brian Westbury or First Trust Portfolios.

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