Why you need Dow 35,000 today

I have an important question to ask you…

When do you think the Dow will hit 35,000?”

Does that seem like a crazy or dumb question? After all, the Dow closed 2015 at only 17,425. It would have to more than double to get to 35,000. But it’s not a dumb question. I’ll explain why in a moment.

For the last five years, we’ve been tracking the Dow Jones Industrial Average and what that number means to you in your real life.

Sure, the Dow has gone up and down, and it’s gone up more than it’s gone down. But is it up enough to actually give you a return that justifies after all the sleepless nights and stomach-churning highs and lows?

Then there’s inflation. Has the market, as measured by the Dow Jones Industrials, even kept up with inflation?

After all, if you haven’t gotten a good rate of return, why go through the agony of a volatile investment? And if you haven’t even kept up with inflation, well, duh …

The Dow first closed above 11,000 on May 3, 1999. At the close of business on December 31, 2015, a little over sixteen years later, the Dow closed at 17,425.03.

Is that good—or not?

Before you can answer that question, you really need to answer two other questions,

1. How much of a bite has inflation taken out of the purchasing power of your money since that historic May day? That information is readily available

But the second question is one only you can answer. No one else knows what the answer is for you:

2. What is the minimum annual return you would be willing to accept, in exchange for taking on the nerve-wracking risk and volatility of the stock market?

Would you be happy with no gain—as long as you didn’t lose any money? Um, … you could get that by putting your money under your mattress.

So be honest. What’s the minimum return you’d settle for, given the risk you’re taking?

Would it be 5%? 7%? Maybe you wouldn’t take that much risk unless you were pretty sure you’d make at least 10%

Over the past several years, we surveyed tens of thousands of people about this, and most responded that they wouldn’t consider risking their money in the market unless they could get at least 7% annually.

But let’s say you only insisted on a 5% per year return

Fair enough. … Are you sitting down?

The Dow would have had to close last year at 35,481, to give you just a 5% annual return since May 1999, after adjusting for inflation!  (But it didn’t – it only closed at 17,425.)

By the way, if you want out of the market if you can’t get a 10% return, here’s the bad news: If the Dow isn’t somewhere north of 77,000 today you have NOT earned 10% since May 1999, after investing for inflation. To get even close in 2016, the Dow will have to double—then double again! What are the chances that will happen?

We’ve been tracking this data for years, and even though the Dow has reached some record-breaking highs recently, investors are still falling behind.

The problem is that inflation gobbles up huge chunks of any gains you thought you made. Since the Dow first closed above 11,000, we’ve had 42.3% inflation, according to the government’s key inflation barometer. (That number is through December, 2015, the latest date for which figures are available.)

Of course, there are many who say the government’s numbers way underestimate the real inflation rate. You may have experienced that yourself, as you’ve watched the prices skyrocket on many things you buy regularly.

Regardless of which inflation numbers you believe are correct, you know that inflation takes a real bite out of the purchasing power of your dollars.

So let me ask you again—how long do you think it will take the Dow to hit 35,000—or even just 27,000 (the amount you would have needed when we published our first article on this topic about five years ago)?

But wait! It gets worse—these numbers don’t even take into account any investment or retirement account fees or taxes, all of which will take another huge bite out of your nest egg.

But there IS a better way!

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Does Warren Buffett Know Something You Don’t?

Warren Buffett, who is considered to be one of the most successful investors of all time, says …

We will have another bubble and it will burst.”

The warning signs are all around us already …

• Small investors also have rediscovered margin debt (borrowing against their portfolios to buy more investments) at levels not seen since right before the last crash. Margin debt hit a peak right before the last two bear markets.
• In some cities, houses hit the market and receive multiple bids above the asking price on the first day, often accompanied by tearful letters from the hopeful buyers pleading to be given a chance. Doesn’t that sound a lot like 2007? It’s déjà vu all over again.
• The same kind of subprime loans (high-rate mortgages for high-risk borrowers) that brought the housing market to its knees have made a comeback.
• Last year it was reported that risky mortgages are increasingly being underwritten by thinly capitalized non-banks and guaranteed by the Federal Housing Administration, which could bankrupt the companies and leave the FHA holding the bag. When will we ever learn?

Risk On! As far as I can tell, for most people, the lessons learned from the Great Recession were fleeting.

But the more important question is—what lasting lessons did you learn from the financial crisis?

Take this quick survey and share your biggest takeaway with us!