Tuesday, October 03, 2006

Dow Sets New High...So What?

The Dow Jones Industrials Average has finally risen above where it was on January 14th, 2000, over six years later. If you were solely invested in the Dow Jones you would have had some pretty anemic returns these past several years. In addition, most people who listen to the news think that stock returns have been dreadful, in fact, the opposite is true, stock returns have been extradorinary.

The Dow Jones Average is just a measure of large companies that tend toward "growth", they are just one asset class. In order to have a truly diversified portfolio you need to own many, many different asset classes, i.e. small, large, value, growth, domestic, international, real estate....an on and on.

Would you be surprised to find out that a well diversified portfolio has returned on average over 11% annually since January of 2000? Yes, during the so called "bear" market diversified portfolio's have continued churning out exceptional returns.

Diversified portfolio's will have their ups and downs as well, in fact they trailed the Dow Jones average by 8 - 10 percentage points a year during 1995 - 1999. The point is that over the long run you will be better served by diversifying your money and holding tight through the ups and the downs.....also, don't listen to the news or CNBC, they have no clue!

Scott Dauenhauer, CFP, MSFP