Friday, July 15, 2016

The Dow just ain’t what it used to be…

Pathways Advisory Group, Inc.
Dustin J. Smith, CFP®

There has been lots of talk lately about the June 23rd “Brexit” vote (the UK’s decision to leave the European Union) and the possible repercussions.  Michelle touched on it with a blog post and this month’s newsletter article.  It’s a major geopolitical event that will take a while to play out.  What caught my eye, after the dust settled from that day, was something a bit more subtle.  Let me explain.

On October 6th 1987, the Dow dropped 92 points from 2,640 to 2,548.

On August 4th 1998, the Dow lost 300 points from 8,787 to 8,487.

On September 22nd 2011, the Dow declined 391 points from 11,125 to 10,734.

And finally, on June 24th 2016, on news of the historic “Brexit” vote, the Dow dropped 610 points from 18,011 to 17,401.

What do these four dates have in common?  They look different but represent very similar 3.4% to 3.5% single day declines.  A 3.4% or greater decline isn’t as newsworthy as you might think.  It’s happened fifty-nine times with the Dow since October of 1987.  What’s more newsworthy, to the long-term investor, is that a Dow of 17,401 (a Dow of 18,506 as of the date of this post) was a Dow of 2,548 just 29 years ago (and that doesn’t include dividends). Not a bad return for all of your troubles!

The Dow just ain’t what it used to be… it’s actually quite a bit more valuable now.  Wonder what it’s going to be like to stomach a 3.4% decline of 1,200 points with a Dow of 35,000?!

Despite all the breathless headlines…

Disciplined investors are rewarded….

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Data exported from historical DJIA prices. All references to the “Dow” above are to the Dow Jones Industrial Average (DJIA).  Past performance is no guarantee of future results.

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