Where Should the Market Be?

Last week the Dow Jones (^DJI) topped the 17,000 mark with a gain of about 3.25% for the year.  The markets have been on a tear for over three years with no significant downturn since the long forgotten technical correction in 2011.  If my July 4^th weekend conversations were any measure of investor sentiment, everyone seems to have an opinion of where the market “should” be, or perhaps better said, where the market “shouldn’t” be.

In an interview Tuesday morning on Yahoo finance, Jeff Macke was quoted saying,

“You’d think 108 years of history would have taught investors that words like “should” have nothing to do with investing, but we simply can’t help ourselves. Something about the stock market being at record highs just rubs Americans the wrong way.”

Oddly enough, the Dow at 17,000 is of no significant fundamental importance.  The only reason that the Dow is priced at 17,000 is because that’s the point at which buyers are willing to buy and sellers are willing to sell.  “Should” isn’t a factor.

The most important question an investor should be asking is, “Am I a long-term investor?”   Regardless of where the market is today, the fact remains that stocks are the single most powerful wealth building tools available to long term investors.  Since 1950 stocks have outperformed the combined total returns of bonds, T-bills, & CPI by over 10 times.  Further, had you invested $1 in the stock market in 1900, it would be worth over $1,000 today.  Just take a look at the long-term growth pattern we’ve seen from the stock market since the year 1900…

Growth of the Stock Market Since 1900

***Sources used:  JP Morgan’s 3Q 2014 Guide to the Markets, JP Morgan’s 2013 Guide to Retirement, & Yahoo Finance. Graph is the S&P 500 Index.