We haven’t seen the Dow Jones Industrial Average rally this much since October 2007, two months before the recession officially started. And who knew one year later all hell would break loose with some of the largest banks and insurance companies in the world having to resort to the U.S. government to bail them out. We remember the 2008 crisis – and we’re still struggling to recover – though some recent economic data, along with strong company earnings, are driving stocks higher – here’s what you need to know:
1. Companies are making do with fewer employees: Remember five years ago when there were a few coworkers that really didn’t contribute much and you sometimes wondered what they were doing all day? Well, those days are over because post-recession means post-layoffs. Don’t you also remember when we lost nearly 800,000 jobs in January 2009? The recession caused companies to lay-off workers left and right. Now, four years later, companies have learned how to maintain and even grow profits without hiring anyone new since the 2008-2009 lay-offs. Scary, isn’t it? Part of why these companies in the Dow Jones Industrial Average (which, is a basket of 30 major companies) are doing so well is because fewer employees means fewer costs, which means more profits.
2. We’re seeing some strong econ data: We had a terrible GDP report during the fourth quarter of 2012, which showed that our economy shrunk by 0.1%. It may not sound like a lot, but we haven’t seen a declining GDP since the days of the recession. And the official definition of a recession is two consecutive quarters of negative GDP, which is why many economists started to worry a few months ago. But those numbers were revised higher last week, actually showing a growth of 0.1% during the fourth quarter of 2012. Now we’re seeing economists say, well that’s not even close to where we need to be. And that’s true! But can we at least sit back and feel a little relief that we can now say that we haven’t seen any negative GDP since the recession?
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3. This is “good” for your retirement savings, depending on your age: If you’re retiring within the next five years, then it actually doesn’t matter what the stock market does, because you’ve got so much time on your hands. If you’re investing the right way, which is dollar cost averaging, where you contribute the same amount of money each month into a retirement account, then you have nothing to fear. While you’re investments will likely be up now, even if the market descends back to a more realistic level, the money you’re contributing every month to your retirement accounts will buy more “stuff” – more shares of stock – more funds – since everything will be cheaper. This will all come in handy for when the market increases, because you’ll own more of that increase.
4. Remember the upcoming anniversary: We’re talking about March 9, 2009, when the Dow bottomed at 6,547 – well, now it’s at 14,275. So you might be thinking now’s not the time to get into the market. Well, it can be if you’re looking at this from a long-term lens. If you don’t need the money you’re investing until 20-30 years from now, then start investing, if you haven’t already. Jump in! Open up that Roth IRA account and get the retirement savings ball moving. Come on, you’re missing out on the compounding interest – it is powerful, trust me!