March, 2013 Archives
by Riaan Nel in Global Investments
Today, March 5, 2013, the Dow Industrial Average reached a new high. But is it really a “high”? The price level reached today is indeed a new nominal high; however, adjusted for inflation the Dow is not higher than it was 13 years ago! The graph above from The Wall Street Journal show the difference between nominal and real prices. For investors this is very important to understand.
The goal of investment is to grow your savings to outpace inflation (the general rise in prices). The last real, or inflation-adjusted, record for the Dow was on January 14, 2000. Although the Dow appears to have risen by 22% from the record high of January 2000, adjusting this increase for inflation over the same period of time still leaves the Dow 10% below that record!