02 May 2014

The Dow Set a New All-Time High Yesterday And That's No Big Deal

Imagine that you put $1,000 into a savings account that paid 1% a month. (An obviously fictional example.)

At the end of month one, you'd have $1,010. At the end of month two you'd have $1,020 and some change. By the end of the year, you'd have $1.126.83. 

Every month, your savings account would set a new record. It would hit a new, all-time high every single month. That's what happens with a steady rate of return.

Which brings us to the market. For the first time this year, the Dow has hit a new all-time high. Analysts are making noise about whether this means the market has topped out, wondering where else to go with their money.

Whether or not the market is poised for a sell-off has little to do with whether or not it is at an all-time high. In a world with less volatility and no business cycle, the market would be hitting an all-time high every month. Just like your savings account. This is what investments do. 

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