THE BLOG

Enough Dow 10,000! These Numbers Actually Count

03/18/2010 05:12 am ET | Updated May 25, 2011

Are you tired yet of the Dow at 10,000? I am, as most financial reporters are, even as we can't seem to help but follow each uptick over the line as if it really meant all our economic troubles were over.

So by way of putting the five-figure Dow in perspective -- and as recompense for asking you to read one more story that mentions it -- let note some other numbers that were released since the Dow hit the 10k mark and that matter a lot more to you and your future.

60 That's the percentage return of the S&P 500 since it hit its low in March. After that kind of run, stocks, if not on the verge of a correction, have to be closer to the top than the bottom.

99 The failure of San Joaquin Bank in Bakersfield, California this weekend brought the number of failed banks this year to one less than another round number. Every failed bank is a reminder that outside the artificially bulked up balance sheets of Goldman Sachs and JP Morgan, the banking system is still reeling.

$11.7 billion That's the amount of money Bank of America, the nation's largest consumer bank, set aside as reserves for bad loans. See "banking system still reeling," above.

$1.4 trillion The size of the federal deficit in 2009, the highest it's been as a percentage of GDP since World War II ended. That means the world is awash in borrowed dollars, nearly half of which, by the way, we owe to foreigners. That can't go on forever, and like everything else that can't go on forever, it won't. In the long run, something will give-most likely a dollar plunge, higher inflation, and higher interest rates.

2014 What your calendar will say five years from now. You need to be more concerned about where the Dow (and you) will be at that time -- and five years beyond that -- than whether the Dow is above or below its Mendoza line right now.

So what do these numbers tell you?

  • The economy still isn't out of the woods, whatever the Dow says. Protect yourself by keeping your emergency reserve fund topped up.
  • The risk in the short run is deflation. At some point in the future, it's going to be inflation. You won't be able to time the switch, so start now to hedge yourself against both risks. Make sure you have some of your money in high-quality bonds--that's the deflation hedge. Make sure you have some of the rest in inflation-protected securities and international mutual funds (your hedge against the cheapening of the dollar).
  • Focus on the future. The Dow at 10,000 probably makes you feel optimistic now-that's natural-but it tells you nothing about what you really need to know, which is what's going to happen next. I know you've heard it before, but your best protection is an asset allocation you can stick with for the long run, come what may. Remember 2008?
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