Dow breaks 11,000

[Monte Smith]

Hey, the Dow broke 11,000 today to close at 11011.90. Sweet! Finally. It's been scraping 11K for some months. This is the first time it has been north of this mark since 2001.

It'll go down again (that's the nature of the beast, up and down), but let's hope it never sees the 7000s again like it did in 2002 and 03.

This is, naturally, one of those numbers, psychologically significant, but not really indicative of anything in themselves.

[Gentle Giant]

I guess this will be flaunted as proof of the brilliance of George Bush's domestic policy agenda.





He does have one, doesn't he?

[Monte Smith]

Originally Posted by Gentle Giant

I guess this will be flaunted as proof of the brilliance of George Bush's domestic policy agenda.

Inevitably. But it is news, no matter what you want to say about it. Lauding or denigrating numbers doesn't change them.

[Dr Dave]

Dow cracks 11K. Um-hum. I guess with Delay out that's the end of the lobbying scandal, so wealthy folk everywhere can breathe easy. Your government is still for sale. The Fed probably won't raise rates anymore, and the poor aren't going into the streets--they're dying of diabetes instead. Hey, let's cash out some Google and buy a condo in Turks & Caicos! I hear it's the up-and-coming spot, just 45 minutes from Miami!

[BFrank]

Of course this number only matters if ALL your investments are equal to the 30 companies in the Dow Jones Industrial Average index.

[Chris D]

My 401k says "thank you."

[Monte Smith]

Originally Posted by Dr Dave

Dow cracks 11K. Um-hum. I guess with Delay out that's the end of the lobbying scandal, so wealthy folk everywhere can breathe easy. Your government is still for sale. The Fed probably won't raise rates anymore, and the poor aren't going into the streets--they're dying of diabetes instead. Hey, let's cash out some Google and buy a condo in Turks & Caicos! I hear it's the up-and-coming spot, just 45 minutes from Miami!

See! Lauding the numbers or denigrating them doesn't change the fact: still closed at 11,011.90.

Originally Posted by BFrank

Of course this number only matters if ALL your investments are equal to the 30 companies in the Dow Jones Industrial Average index.

Depends what you mean by "matters." Unless you are exactly invested in the companies represented by an index, no index will conveniently display the exact change in your personal investments. But the Dow is a respected market indicator, one of many. And today, around 4pm, it showed some strength relative to recent trends.

Originally Posted by Chris D

My 401k says "thank you."

Yes it does. Especially if you were funding it in the crap market of 2002 and 2003, as I was. But of course people of roughly our age are counting on the more measured, upward tick of longterm stock gains to aid our retirement savings, and not magic windfalls. Could all go south, but you hope not. And you keep your eye on the ball.

[LennyH]

My 401K has been doing well, but it's non-US that's done the best by far over the past couple of years.

I remember that a lot of money managers used to recommend investing 20% or 30% max in non-US. Based on what's been happening in the US for the past several years (budget and trade deficits, value of the dollar, bone-headed government) I didn't see any reason to stick to that. A little over 1/2 of my 401K is currently non-US with a Non-US Emerging Markets fund being my biggest foreign investment. It's paid off very well so far. I recently changed my allocation to invest a little more in the US again.

What percentage do you invest in non-US stuff?

[Monte Smith]

I have my IRA dough distributed in a group of mutual funds, no one of which does much with non-US investments. I have a 500 index, an aggressive strategic equity fund, a safer asset allocation vehicle. Pretty dull.

[BFrank]

Originally Posted by Monte Smith

Depends what you mean by "matters." Unless you are exactly invested in the companies represented by an index, no index will conveniently display the exact change in your personal investments. But the Dow is a respected market indicator, one of many. And today, around 4pm, it showed some strength relative to recent trends.

It's just that the DJIA consists of just 30 stocks that are supposed to be representative of a certain portion of the market. The S&P 500 is usually considered a better guage of market conditions.

[Dr Dave]

Originally Posted by BFrank

It's just that the DJIA consists of just 30 stocks that are supposed to be representative of a certain portion of the market. The S&P 500 is usually considered a better guage of market conditions.

Yeah, so the S&P 500 was a point off its 12-month high. Good enough for you? (Might be more interesting to note that both indices were up on basically no market news.)

[stonemonkts]

The Fed recently hinted that they were pretty much done raising interest rates. That was when the market started this most recent zig upwards.

Bush has nothing to do with the equity markets, a point I've attempted to make on this site in the past.

Overall, the stocks which comprise the S&P 500 are expected to grow earnings at or greater than 16% over the next 12 months. Historically those earnings usually run at a rate of 10.5%. This is a major reason behind the market's performance.

I could be wrong of course, but this is how I read it. I can ramble about this stuff for pages (don't worry, I won't).

[BFrank]

Originally Posted by Dr Dave

Yeah, so the S&P 500 was a point off its 12-month high. Good enough for you? (Might be more interesting to note that both indices were up on basically no market news.)

Yeah...........good enough for me.

[rollhead]

Originally Posted by Chris D

My 401k says "thank you."

I hope you have more in your 401k than the average American, or you will be sucking air, Chris.

The great "news" of the Dow hitting 11,000 suits Republicans just like Monte fine because he can then use it as a rationalization to gut Social Security and encourgage companies to dismantle their pension plans.

It's more "happy" bullshit from the village Republican crackpot. You might as well run an advertisement by Henry Blodgett, or any of the other "irrationally exuberant" pump-and-dump artists that populate Wall Street.

The Dow's average p/e has historically been 15. Google's p/e is now running over 100, and "analysts" say it is undervalued.

So, we are starting to see the same kind of drive up of the market that we saw in the 90s. (Hope you have your TVs tuned to CNBC.)

Crackpots like Monte would like you to believe that every American is cashing in on the stockmarket and the so-called "ownership society," when the top 10 percent of Americans own 85 percent of the stock.

If you take the bottom 90 percent of Americans and you divide up just the stock dividends available to the rest of us -- not the capital gains -- we would make a magnificent $18.75 a month per person.

Here is a nice quote from "The Great 401(k) Hoax" by William Wolman (former chief economist for Business Week magazine) and Annie Colamosca:

"The American public has been hoodwinked by political and corporate forces into relying on the 401(k) as the primary long-term investment mechanism. In doing so, the stock market has been put center stage in providing for a comfortable retirement for the average American. The 401(k) represents an implicit promise to middle-class Americans that they can live off the income tha they receive from stock ownership, just like the rich do. It is a promise impossible to fulfill: It is the great 401(k) hoax ...

"A warning of the gross inadequacies of the 401(k) was already apparent even at the end of the booming 1990s, when stock prices had quintiupled. At the height of its hold on the American imagination, the average 401(k) was puny as compared to the long-term financial needs of the American family. The average 401(k) account shrank to $49,024 in 2000, down from $55,502 in 1999, according to the Employment Benefit Research Institute. And this number looks a lot better than it really is because it averages in the 401(k) of the top earners. A much more realistic figure is the median 401(k) (half American families below, half above), which at the end of 2000 was only $13,493, down from $15,246 in 1999. And even these numbers give a generous interpretation to how the nation's families fared during the boom, because "old-fashioned" pensions -- definined benefit plans -- were fading from the scene and Social Security was under political attack, particularly from the right wing of the Republican Party."

So, my advice is that when you start hearing "happy talk" about the Dow from Republicans and others who make their living off the stock market is to hold onto your pensions, your Social Security and your wallets, because the "happy talk" means they want to steal something from you.

401(k)s were established to satisfy corporations, not the interests of working Americans.

P.S. I do have more than the average American in my IRAs and 401(k), but I have the good sense to know that I am going to need Social Security and a defined benefit pension plan (which I have through my union) in addition to the few dollars I will get from my "investment vehicles"

[rollhead]

Originally Posted by BFrank

It's just that the DJIA consists of just 30 stocks that are supposed to be representative of a certain portion of the market. The S&P 500 is usually considered a better guage of market conditions.

Both the DJIA and the S&P indexes only include large cap stocks. There is no "magic" in their representation of the market. The Wilshire 5000 is a so called "total market" index for domestic stocks.

[Monte Smith]

And at the start of trading today, we're in the 10,000s again. Scraping the imaginary line.

[Darryl G. Thomas]

I, like the vast majority of Americans and a couple of billion Chinese, know dick about the stock market.

I've got a 401(K) that I only pay attention to when the year end statement comes out. And my company offers a pension (for now). Maybe I should read "Investing for Dummies". (The book exists, I bought it a few years back and never read it).

[Monte Smith]

The only thing you need to know about a 401(k) is that you should fund it. A 401(k) is not an answer to your prayers, and it's not a guaranteed comfortable retirement, but it is a part of that.

You should fund it to the max possible, especially if your company matches funds. Because matching funds means that you are getting paid money that you wouldn't be getting paid if you weren't funding your 401(k). Free money, in essence. Not everybody can afford to max out their 401(k) contributions, because we all have bills and we like that paycheck to be as big as possible. But if you look at it wisely, every argument is for maxing out the 401(k) now and maybe sacrificing some in the present. You'll already have enough to sacrifice when you're old, don't make your retirement funds a part of it.

[stonemonkts]

I agree with what Monte posted.

I'd also offer this....if you know squat about the market, AND have access to a market-based index fund (such as Vanguard Index 500,), then don't try and wing fund pics, better to place your money in a broad-based index fund.

The market as a whole increases by approx. 11% per year, including depressions and crashes and bubbles and all that shit. 11% compounded annually over 20 years is huge. Also, the other beautiful thing about 401-K contributions is that you automatically dollar-cost average into your assets, so you don't need to worry about timing the market. Couple all of this with company matches, and we're talking investing nirvana. I don't give a fuck who is president, this is a wonderful thing to take advantage of if you can.

Just my 2 cents.

[Darryl G. Thomas]

Monte,

I've been with the same company since '87. Sorry to say I didn't join the 401(K) until '94. Actually it's doing pretty good. I haven't maxed my contribution yet because I have to pay off a huge credit debt I incurred buying allthese goddamn jazz CDs. Anyway, my companies offering a "catch up" contribution where you can inccrease your pre-tax contribution beyond what it normally is if your're 50 (which I'll be this year). Unfortunately, you have to had already maxed your prte-tax contribution.

But you're right about the free money bit. It's really a no-brainer. Even my finacially-ignorant ass knows that. It's so sweet. Anyone who doesn't take advantage of it is kind of foolish.

[Darryl G. Thomas]

stonemonks,

That's what I did when I first signed up. I haven't changed my choices since.

[stonemonkts]

Good for you, Darryl.

I guarantee you are doing better than 2/3 of the wall street money managers. Most people can't beat the S&P 500 performance, including professionals.

[jazzy mary]

Originally Posted by Monte Smith

The only thing you need to know about a 401(k) is that you should fund it. A 401(k) is not an answer to your prayers, and it's not a guaranteed comfortable retirement, but it is a part of that.

You should fund it to the max possible, especially if your company matches funds. Because matching funds means that you are getting paid money that you wouldn't be getting paid if you weren't funding your 401(k). Free money, in essence. Not everybody can afford to max out their 401(k) contributions, because we all have bills and we like that paycheck to be as big as possible. But if you look at it wisely, every argument is for maxing out the 401(k) now and maybe sacrificing some in the present. You'll already have enough to sacrifice when you're old, don't make your retirement funds a part of it.

Amen, Monte! If you can't do the max (I can't right now--but have in the past, always) do as much as you can. At the very least, put in the required percent you need so your co. matches it. Otherwise, you are saying "No!" to free money. Also, sign up for it as soon as your company lets you. Even if you think "why bother, I'm young, I'll be outta here in a couple of years..." Doesn't matter, do the max, if you can, as soon as you can. Roll it over once you leave your job.

When I bought my house, I used what I had in my 401 K at the time (I'd only been in my job then a few years) to put down the down payment. It wasn't much at that time, but it did the trick. And, as it was my principal residence, I didn't have to pay a penalty!

My company has T. Price Rowe manage our individual 401 ks. It's very easy to change my contribution on line.

What one can do, is put what percent they think they can do and, after a couple of paychecks, if you feel it's too much out of your pay, you can change the amount withheld. But don't forget, this is before tax money. You'll prob. find out that once you compare how big your paycheck is with the 401 pre-tax contribution vs. the no 401 pre-tax contribution, the difference in the net pay isn't that amazing.

Many 401 ks are incredibly easy to "manage" also. Many of them even offer "life mixes" so they'll figure out for you how the funds should be allocated. The best advice in re: 401 ks is to contribute the max, roll it over if you leave your job, have a mix of funds appropriate to your risk and age and then let it alone!

As soon as I can, I'm going to max out. This, along w/ FSA for healthcare and dependant care and mortgage interest is one of the few tax shelters available to middle-class folks.

[Monte Smith]

Sounds like you know enough about 401(k)s already, DG. Which is a shame, because I was going to tell you that 401(k)s are administered by leprechauns and that I have a friend who has an in with the head leprechaun, and then give you my number in case you want to make a big pile of gold.

I have to say that right now, I don't have a 401(k). I've had three of them in the past, but the work I do, I don't stay with one company very long or even always work with a company. So I've had to roll all my 401(k)s over to IRAs and hand them off to a fund manager like the one stonemonkts mentioned, Vanguard. Fidelity is another. I make do by maxing out my Roth each year and have set up a SEP (self employment pension) and a traditional IRA and the like. My wife has a 401(k) and a pension with her job, but then she also used to be with the Army which had a program like the gov't THRIFT. It can get complicated when we juggle these retirement baskets, but complexity is the nature of the beast for this generation. So much choice, so many programs, no size fits all, lotta bullshit.

[Darryl G. Thomas]

Trust me, I'm an accidental investor. I lucked out and had a couple of project managers that helped me pick the funds and I remembered somewhere someone saying the best thing for long-term investments is just to leave them alone. So seeing as how I was way over my head I followed their advice.

My question is this: Is this stuff being taught in high school? I mean I slept through economics back in '74 but we had a different climate back then: guaranteed pensions, Social Security, etc.

[rollhead]

Originally Posted by stonemonkts

I agree with what Monte posted.

I'd also offer this....if you know squat about the market, AND have access to a market-based index fund (such as Vanguard Index 500,), then don't try and wing fund pics, better to place your money in a broad-based index fund.

The market as a whole increases by approx. 11% per year, including depressions and crashes and bubbles and all that shit. 11% compounded annually over 20 years is huge. Also, the other beautiful thing about 401-K contributions is that you automatically dollar-cost average into your assets, so you don't need to worry about timing the market. Couple all of this with company matches, and we're talking investing nirvana. I don't give a fuck who is president, this is a wonderful thing to take advantage of if you can.

Just my 2 cents.

I agree that the tax benefits alone are worth investing in a 401(k) even if you don't get a match, but .... 11 percent return? What voodoo doctor are you getting that number from?

I used to work for a company that is now a subsidiary of Goldman Sachs, and we used to talk about a long term trend of 6-7 percent, but that is only if you are lucky.

If you look at the market over the 20th Century you have to see that many investors were screwed by the market.

The market averaged -0.1 in the two decades following the 1901 peak, 0.4 percent for the 20 years following 1929, and 1.9 percent for the 20 years following 1966. And that includes dividends AND capital gains.

So, for 60 percent of the 20th century the market was stagnant. And this isn't about "dollar cost averaging" -- someone could have worked for much of their adult life, putting in a few dollars every pay check, and still be stuck without much in the way of capital gains.

While Wall Street voodoo doctors tell the investor they can count on 7 percent, some econommic experts say that 2 percent is more realistic -- for the next decade or so -- given the fact that the P/E of the S&P 500 and other indexes are above STILL above historic norms.

[Monte Smith]

Originally Posted by Darryl G. Thomas

My question is this: Is this stuff being taught in high school? I mean I slept through economics back in '74 but we had a different climate back then: guaranteed pensions, Social Security, etc.

Not enough. I know I got out of high school with one lesson in economics and it was how to balance a checkbook (something I don't bother to do, incidentally).

But you learn, if you keep your eyes and ears open. I am a big fan of popular money books. Many of them are gimicky, but most offer pretty commonsense advice and if you read three of them, any three, you'll have a handle on the basic issues and vocabulary. Enough to get you involved in the discussion and to give you at least enough confidence to stand next to someone reading the WSJ on the train. And who knows, maybe you'll seize the reins of your finances. But as I say, read three of these books. Don't do something stupid like reading one of them. And don't buy it, they're all down at the library. Put that $21.95 in a new account you open for yourself, one your employer has nothing to do with.

Which brings me to jm's point:

Originally Posted by jazzymary

[The 401(k)] along w/ FSA for healthcare and dependant care and mortgage interest is one of the few tax shelters available to middle-class folks.

There are also middle class tax shelters in traditional and Roth IRAs. A traditional IRA contribution can be tax deductible, so the benefits here are obvious. The Roth is not tax deductible, but the money that goes in is already taxed and will not be hit again. So any growth in this account is nicely sheltered. There's a maximum contribution ($4000 per person this year, 5000k if you are over a certain age) and also, I think, a limit on the amount you can earn. Not sure what that might be. These IRAs are like the 401(k), they only offer advantages if you make use of them. You don't have to invest $4000 to open one, you can invest what you can afford. Take the $21.95 you saved (above) and add it to the kitty of money you saved by not buying CDs on the fourth Thursday of the month and you might have a tidy sum. Maybe not Maharaja-tidy, but there is no sense in not saving and investing unless you can beat the world. You want to follow that investment strategy, buy a lotto ticket.

Speaking of wild gambles, I see the Dow closed today just one point off of yesterday, at 11,010. That makes two days above 11,000! Shee-it, it's like the Gilded Age up in here!

[stonemonkts]

Originally Posted by rollhead

While Wall Street voodoo doctors tell the investor they can count on 7 percent, some econommic experts say that 2 percent is more realistic -- for the next decade or so -- given the fact that the P/E of the S&P 500 and other indexes are above STILL above historic norms.

Sounds like you read a lot of wall street bear opinions. I've read them all too.

This chart shows the markets since 1926:

[stonemonkts]

I should've noted the source of the chart. It is from the "Index Funds Advisor" site

This chart shows comparisons between investment types (note where the plot point is for the S&P 500):

[stonemonkts]

Finally, here are the compound annual returns for the S&P 500 over various timeframes:

10 years (1996-2005): 8.91%

15 years (1991-2005): 11.31%

25 years (1981-2005): 12.30%

35 years (1971-2005): 11.14%

50 years (1956-2005): 10.28%

79 years (1927-2005): 10.20%

Source: http://www.ifa.com/btp/