When I was a practicing advisor, today was a big day for short emails from clients that generally ran like this:
I saw the Dow Jones hit a new high today. Should we invest more money?
FYI: If you ask your financial advisor if you should save more money, the answer is, of course, nearly always a resounding “yes.” (Though I did have the occasional oversaver that I had to consistently convince to go spend some money.)
However, the Dow Jones Industrial Average reaching a new high shouldn’t be the reason to save more money. Save more because:
– You have future plans (retirement, education, house, car) that require money
– Your plan is dictating where your savings should be invested
Before you invest in an all-time high market, ask yourself this question:
Why Is The Dow Jones at Record Levels?
The Dow Jones hit a new high yesterday because the Federal Reserve decided to continue purchasing Treasuries. In effect, interest rates will remain low longer because the Fed will continue purchasing bonds, driving prices up. Because bonds are sold at auction, higher prices mean that the government has to pay a lower interest rate on the debt.
That begs some questions:
– Do you think the Fed will continue buying bonds forever?
– What happens to the market when they discontinue this practice?
If you think about the mechanics of “why” the Dow hit a high, you should have the exact reverse thought of “Should I invest.” If I were to imagine an analogy it would be this: This market moved higher yesterday because your drunk uncle who owns the store decided to give you, the employee a raise.
Sadly, we know that your drunk uncle will wake up this morning and have little remembrance of why you were his buddy yesterday. We also know that he can’t go on with this hard living forever. At some point, he’s going to have to reverse course (as will the Fed). When this happens…and neither you nor I can predict the date, we’d better be ready.
What does “be ready” mean?
First, here’s what it doesn’t mean: It doesn’t mean to panic or remove all of your money from the financial markets. If your funds are invested with a long term plan in mind, you should do nothing with existing funds outside of rebalancing your portfolio.
Here’s what I DO mean: If you’re ready today to be more aggressive, thinking about writing your advisor and asking him/her “Should we invest more money?” I’d recommend against it. The day to ask “should we be more invested” is when this drunk uncle of a market is on the decline.
Are you looking for ways to save more money? Check out OG’s good read on our sister site: Why You Need to Save Another 1 Percent Right Now.
Some big “Thank You” shout outs:
– Thanks to Lance at MoneyLifeandMore for mentioning the StackingBenjamins podcast in his piece Flood Insurance Rental Property Surprise – What New Landlords Need to Know.
– A big thank you to PK at DQYDJ.net for mentioning his podcast discussion in his piece Why Do Some People Assume Math is Magic?
– Thank you to Alexa at Single Mom’s Income for mentioning our iPhone comparison post on her Freelance Jobs piece.
Today’s Workout: 9 mile tempo run
Day’s I’ve Run In a Row: 359
On My iPod Today: Moneyplan SOS podcast: 4 Steps to Making Smart Purchasing Decisions