The Dow Jones Industrial Average just surpassed a major milestone – 20,000. The widely popular index of stocks has had significant gains since the close of the Presidential election, scoring many record highs. What is the significance and how does it affect your portfolio? Here is a breakdown:
1. What is the Dow Jones Industrial Average?
The Dow Jones Industrial Average is an index that has been around since May of 1896 and is composed of just 30 U.S. stocks. It is the most referenced index on television and newspapers and is often a barometer of investor sentiment. Its use is so common, that if you asked the average American “How did the market do today?” they will invariably quote you the Dow.
The 30 stocks that compose the Dow have changed 51 times since the beginning of the index. The current composition as of today is:
|American Express||AXP||Consumer finance|
|Boeing||BA||Aerospace and defense|
|Caterpillar||CAT||Construction and mining equipment|
|Chevron||CVX||Oil & gas|
|Cisco Systems||CSCO||Computer networking|
|ExxonMobil||XOM||Oil & gas|
|Goldman Sachs||GS||Banking, Financial services|
|The Home Depot||HD||Home improvement retailer|
|IBM||IBM||Computers and technology|
|Johnson & Johnson||JNJ||Pharmaceuticals|
|Procter & Gamble||PG||Consumer goods|
|UnitedHealth Group||UNH||Managed health care|
|Walt Disney||DIS||Broadcasting and entertainment|
2. Which components of the Dow 30 have contributed to its record highs?
After all the news reports since the election, you would think that every stock in the Dow Jones is at all-time highs. However, this is not the case. In fact, since the election there are companies that are negative:
|Company||% Return (since election)|
|Johnson & Johnson||-4.0%|
|Proctor & Gamble||-0.3%|
Most of the Dow returns have come from only 5 companies:
|Company||% Return (since election)|
|JP Morgan Chase||22%|
3. How does it affect my portfolio?
Mason & Associates strives to build diversified portfolios across many asset classes with a long-term perspective in mind. Like most professionals, we do not use the Dow Jones Industrial Average as a benchmark. Since the Dow is only 30 large cap stocks, we prefer to benchmark portfolios with broader indexes that represent tens of thousands of stocks, bonds, and alternatives (real estate, etc.). The Dow Jones at 20,000 is only significant for your portfolio in that it provides guidance as to the current investor sentiment.
Due to your portfolio’s diversified allocation, you may not capture all the recent upside of the Dow, but more importantly, you may not capture all of the potential downside either.
As we approach year end, we will continuously monitor your portfolio and position the investments based on our economic outlook for 2017.
Brent M. Mason is the President of Mason & Associates, Inc. Brent began his career in 1999 with Putnam Investments, where he was a vice president and served as the marketing manager for Putnam’s Insurance Products Division, specializing in the development and sale of investment vehicles within insurance related products. Brent earned a Bachelor’s Degree in Business Administration from Southern Methodist University, in Dallas, Texas where he focused on marketing and finance. Brent is a licensed California insurance agent and can offer life, health, variable and long-term care insurance products. Currently, he is a member of the Board of Directors at Hillsides, an organization that specializes in meeting the needs of at-risk children in the greater Los Angeles area. Brent lives in Pasadena with his wife Leah and their three beautiful children. He enjoys golf, snow skiing and spending time with family and friends.