A while back a client and I were discussing his investment accounts. During the conversation, he mentioned how he paid attention to the “market” as a proxy for the relative performance of his account. In other words, when the “market” was up, he figured he was up. And when the “market” was down, he figured his account value had declined.
To be honest, that’s not an unreasonable approach to mental tracking, and I told him so. But then I asked him, “What is the “market “that you are paying attention to?”
He shrugged his shoulders and replied, “The Dow, I guess”.
At that point I reminded him that his investments were spread across multiple countries, different economies, different market capitalizations, and valuation metrics. Then I suggested that a basket of thirty large American companies my not be the best indicator for how his accounts are tracking. Then he asked a great question.
“Well, which index would be better?”
I shared with him that I thought the MSCI All-Country World Index would be better for his purposes. Though not perfect, it would be better for mental tracking than the Dow.
Several months later he mentioned that he had been watching the MSCI “like a hawk” and while it was not an exact match – like I had said – it was a better gauge than the Dow Jones Industrial Average. This insight gave him a better experience and understanding of the ups and downs of his investment accounts.
So, our suggestion to you is the same as our suggestion to him: if you have a globally diversified portfolio invested within and across asset classes – which you should – pay attention to more than the Dow.
Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/ SIPC.
The MSCI ACWI is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets. This index consists of the following developed country indices: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the UK and the US. The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors. Indices are unmanaged and may not be invested into directly.