I recall watching CNBC when the DOW crossed 10,000 a little over a week ago. What was it that made the traders and investors on the floor cheer? Why is the 10,000 milestone so important? What makes this time different from the first time the DOW passed the 10,000 mark 10 years ago?
The Decade That Flat-lined
To me, the DOW crossing 10,000 means nothing fundamentally and technically it is another whole number to trade off. The DOW crossing 10,000 did not create any new jobs, nor did it help the declining dollar. As I mentioned earlier, the DOW crossed the 10,000 milestone 10 years ago. If you had put your money into an index fund 10 years ago, it has done nothing…not counting dividends. Dividends that, if reinvested, have lost value and taxes you paid on them probably wipes out anything you might have gained.
Dow 10,000 – The Second Time Around
With a decade of no performance, where do we really stand? Well, 10,000 today is not the same 10,000 as it were 10 years ago. Thanks to inflation, your investment in an index fund that tracks the DOW might have returned you the same dollar amount as you invested but it gave you a dollar with a significantly weaker buying power. Want to know more about the loss in your buying power? Head over to ZeroHedge.com and read an article called “DOW 10,000!!!! OhWait, Make That 7,537.”
Investing In Index Funds
If you are investing in index funds think about this post. Ten years of no gains and loss of buying power will make anyone poorer than they were 10 years ago. Do not get me wrong, I am not saying that index funds are a terrible investment. I am saying that the buy and hold theory should be history. A decade of losing 25% of your buying power and no investment gains is an obstacle you do not want in a retirement account.
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