At some point today, you probably got a notification on your phone or heard from your friend that the Dow passed the 20,000-point milestone. While that sounds nice and exciting, what does it exactly mean?
For starters, it means we’re totally not in a recession right now. It also means that if you have money in one of the thirty stocks on the Dow Jones Industrial Average index ($DIS, $CAT, etc.), you probably made more money today.
But what does the Dow breaking records say about the economy as a whole. Better yet, how can you make money on the Dow’s success?
Let’s take a look.
Investors and economists use the Dow as a baseline to measure the stock market.
The Dow is the weighted average of 30 of the biggest U.S. companies. If the Dow performs well and trends upwards, then the stock market as a whole tends to perform well and go up, too. If the Dow is down, the market tends to be down, too.
Like other stock indexes, the Dow historically increases over time.
The Dow goes up and down every day, but it historically trends upward. When it started in 1886, it was worth 40.94 points (the measurement of its value). As of this writing, the Dow is worth around 20,074 points. While it can drop tens or hundreds of points in a single day during troubled economic times, it can also increase by the same amount.
The Dow hitting 20,000 points means the market is doing better than ever.
Twenty thousand points on the Dow is an all-time high for the stock index. The market is currently trending upward, as investors are more positive than negative on the state of the economy/stock market and are more than willing to invest.
If you want to invest in the Dow, you should invest in a Dow-related ETF.
Exchange-traded funds follow stock indexes like the Dow to a T. If the Dow goes up, a Dow ETF goes up, and vice versa. State Street’s Dow “Diamonds” ETF, $DIA, is arguably the most popular Dow ETF. Elements’ $DOD also follows the Dow, but has a higher expense ratio and only contains 10 of the 30 stocks in the Dow. There are countless other Dow ETFs, all either following the Dow, betting against the Dow, or related to the Dow in some way.
Should you invest in the Dow? New investors are generally advised to put a chunk of their money into ETFs, especially those following major indexes. This is due to the fact that said indexes increase over time, as do the ETFs.
If you feel that the Dow will only continue to skyrocket, be sure to do your research in your ETF of choice before you invest in it. If you’d rather not buy into an ETF that only follows 30 companies, you could follow the S&P 500 instead.