Dr. Dow Jones Predictions, 44,000!?

Ordinary People, Extraordinary Wealth

I picked up a great book about 18 years ago called Ordinary People, Extraordinary Wealth by Ric Edelman. I loved the basic premise of the book, which basically shows how ordinary folks like me can build wealth by practicing certain habits and rules of saving and investing. The book also showed that some folks lived pretty nicely after working and saving/investing a few hundred thousand dollars. These were normal people like you and me; teachers, nurses, federal employees, IT workers, small business owners, etc. No trust fund kids, silicon valley tech titans or wall street tycoons. Some of the suggestions are probably controversial to some. For example, the author argues there is no reason to ever pay off a mortgage. Whereas it seems nowadays many people consider paying off a mortgage as a cornerstone of their financial freedom plan.

Average Gains, What Would The DOW Be Now?

I recently pulled out my old copy of the book. There is a great section that has snippets from interviews from his ordinary yet wealthy clients. Great inspiration on what they did right and what they regret the most when it comes to their personal wealth. One thing I found funny were the predictions of the DOW. The book did not anticipate the Great Recession that wiped out massive stock value very quickly. First though, what is the DOW? The “Dow Jones Industrial Average” is a stock market index that shows how 30 large publicly owned companies in the US have traded during a standard trading session. The Dow was originally calculated in 1896.

DOW (An Index of Large American Companies in Various Sectors, Snapshot of the Market)

A few of the current companies are General Electric, The Home Depot, Johnson & Johnson, Pfizer, Walt Disney, etc. I should also mention that the author I just mentioned, Ric Edelman believes the Dow is not always the best indicator of the broader market due to its limited scope. The idea is that it is suppose to offer a snapshot of the entire market condition by consistently tracking these major corporations. Economic tools are never perfect. But for fun, check out these predictions from the book about 18 years ago when the Dow was at 11,000: If the Dow earns just 7% per year over the next 20 years, the Dow will be 44,000. If the Dow earns just 10% per year over the next 20 years, the Dow will be 88,000. If the Dow earns just 12% per year over the next 20 years, the Dow will be 117,000 Even a 3.5% average return would produce a 22,000 Dow!

As of the latest version of this article in July 2021, the DOW is about 35,000

So what the heck happend?

I am no economist, but that sure did not work out too well! The DOW stock market average was around 11,000 at the time of the writing of the book.  Keep in mind today in 2018 it stands at around 25,000. So far we kind of hit slightly above that 3.5% return. We went through a couple Wars after 9/11 and the worst recession ever, maybe we should have called it a depression light! The main takeaway for me is that we need to focus on multi pronged strategies to achieve financial freedom. No one knows what the market will do in the next 10 years.  For me that means a balanced portfolio, debt reduction, prudent risk taking, etc. But who knows, there is 2 years left until that books calculations at 20 years acould come to fruition, will we see a 44,000 plus Dow? I would or would not “Dow” it?, LOL, stupid Dad joke!

Is the DOW undervalued?

If you made it to the end of this post, you may be wondering what Indian Jones has to do with the Dow? Not much, except the name Jones and I think Harrison Ford is cool, enough said. The question remains, is the DOW undervalued at this point? Was the prediction so far off? We did beat the expectation of 22,000 and there was growth, but it seems like there could have been more. Time will tell and it will be interesting to see how this all unfolds.    

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