Tuesday, May 6, 2014

Death, Taxes and New Market Highs

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

A common headline in the financial media is that the market (DJIA, S&P 500 and Nasdaq) has reached an “all time high”.  Fortunately, after emerging from a deep recession in 2009, it’s been a common headline the past few years.  It happened 52 times with the DJIA last year alone. Following the headlines is always entertaining.  What I find interesting about this particular headline is the reaction.

“If we keep hitting all-time highs, the market must be over-valued”.  “We are due for a pullback”. “I think the market has topped out, don’t you?” As you know, we don’t.  We take a much different view of markets.  We prefer to look at it from a distance – sort of like viewing a neighborhood from the air.  When you look at it this way, you realize that all bear (down) markets are temporary pullbacks on a PERMANENT bull (up) market.  You look at investment decisions as a risk/return trade-off – not a timing event.  You look at investing as a permanent fixture of life.  You look at new market highs as an inevitability – as certain as death and taxes.

There are lots of details to debate.  And it’s important to debate them.  But it’s also liberating when you emerge from the “weeds”.   Short-term results are noisy.  But markets thrive.  Despite world wars, terrorism, recessions, depressions, bad government policy, bad economics and constant uncertainty, markets thrive.  They always have.  We believe they always will.  Nick Murray, who frequents our newsletter via his client corner commentary, put it best in Simple Wealth, Inevitable Wealth, stating that “the only realism is optimism.” When you take a step back, that’s what you see.

Don’t believe me?  Take a look at this chart.

1924 – 110. 
1934 – 104. 
1944 – 152. 
1954 – 387. 
1964 – 874. 
1974 – 619. 
1984 – 1211. 
1994 – 3835. 
2004 – 10,783. 
2014 – 16,512 (as of 5/2/2014). 

It’s not just about what has happened but also why it has happened.  It’s not an anomaly.  Look as far back as you can.  Look at all twenty year time periods.  Look at prosperity in general.  Look beyond our borders.  Look beyond recessions.  Look beyond pullbacks. The worldwide engine of capital markets and ingenuity is too powerful to stop - it’s a locomotive.  Punch your ticket.  Watch from the air.  Don’t sweat the headlines!

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