Over time the indices grow. They also contract. Many confuse these times as marking the time to jump in … now that “everything” has gone up. A sentimental connection to the excitement the news and advertisers relay.
However, if you look at the cycle of market emotions graph, when markets are up often may be when there’s greater risk of their decline. People who jump in get surprised and pull out on that decline – result: loss..
We just went through this drill as the Dow approached and passed 14,000 (and the previous market highs of 2007). Some may say this is premature because the Dow hasn’t gone over 15,000 yet. But, whether it has, or has not, is not really the point.
There’s nothing special about any index value. Dow 15,000 is a way point, just like the Dow 10,000 when it first closed over mark on March 29, 1999;
or Dow 5,000 on November 21, 1995 (Wikipedia).
Might the Dow close higher and maybe reach 20,000 someday? Probably, given time … but not in a straight line … and maybe well after your goal gets here.
These are simply numbers that have little to do with your goals. You could have just a little invested, pass any number on the indexes as they grow, and still not reach your goal!
You should benchmark your progress against your personal goals and how you are accomplishing them financially. An index has nothing really to do with you or your goal … you can’t control it.
Making progress towards your goal … that is something you can control, once you realize how much you save or spend has a bigger impact on your success, than returns or arbitrary index values that you can’t control.
We celebrate New Year’s each year … but nothing has really changed either side of it. The Dow (and other indexes to a lesser extent) crossing certain points going up gets celebrated too. But, what has really changed?
Do you understand your emotions and how they hurt your investing?