- The S&P 500 index rose to 1400 for the first time in almost four years
- The NASDAQ closed at its highest level since December 2000!!
- The Dow Jones Industrial Average had its best close last week since December 2007
As always, I promise no unnecessary jargon, but every investor should be comfortable with the concept of indices. I know the S&P, NASDAQ and Dow Jones are familiar terms to regular readers of Financial Woman, since I’ve written often about the importance of understanding indices as both a way to:
- Measure the performance for any traditional investment you own
- Measure the performance of any investment service you use
- Create a simple, low cost investment plan using index funds
For purposes of this article, just remember that the indices represent a large or small section of a market; the three indices mentioned above each represent a large, albeit slightly different, section of the US stock market.
And now to the main point of my post, which you may have thought I forgotten at this point! Amidst all of the doom and gloom about the economy, the real estate market, and the government endlessly printing money in recent years, the stock market has rallied since March 2009. Does this make any sense? Yes and no is the simple answer.
Remember, the financial markets move in anticipation of changes in the economy, as I wrote in my Financial Woman post last week when I made a comparison to the full retail pricing for cashmere sweaters in the heat of summer and the stock market. A recent article in Investor’s Business Daily by Tahar Mjigal explained this entire paradigm beautifully. Be sure to read it if you want to learn more about this topic that every investor should have an awareness of before putting money into any traditional investment, such as the stock or bond market.
The economy is not the only way to stay attuned to the pricing of the financial markets. (Let’s face it; economics can be a little dry.) As mentioned in the Investor’s Business Daily article, stock charts also provide useful tools for clues about market tops and bottoms.
Before you start wanting to tell me to shut up, remember the Financial Woman 1% principal; learn just 1% about the huge topic of managing your investments, or overseeing management of them. You do this in many other areas of your life, while demonstrating success, leadership and confidence. Indices are part of that 1%.
The 5th step in the Financial Woman Grow Your Money process is to avoid buying high and selling low. If you do all of the other steps right, but miss this one, it will be almost impossible to grow your money. An awareness of the overall trends of the indices will keep you pointed in the right direction toward your financial goals.