The Dow Jones Industrial Average could hit 100,000 by 2030, according to financial author and adviser Ric Edelman. Edelman, who believes incredible profits are in the making for those who prepare for new economic realities. If it doesn’t hit 100,00, he said, it will probably hit 150,000.
The blue-chip index currently trades at around 21,000, meaning a surge to 100,000 would mark a roughly 376% increase.
In his book, “The Truth About Your Future: The Money Guide You Need Now, Later and Much Later,” Edelman tries to educate investors on saving for retirement in the age of technology with life expectancies of 110 and 120. People will need to work much longer than they do today because they will live much longer.
Fortunately, technology has reduced the cost of investing, thanks to exchange-traded funds.
Retirement Will No Longer Exist
“We’re not going to have a future the way our parents and grandparents had theirs,” Edelman told interviewer Scott Gamm in “The Street,” a Yahoo interview show.
Retirement now, as a 20th Century innovation is gone. It won’t exist in the 21st Century.
“You need to save in companies that are going to survive and thrive in the 21st Century,” he said.
Gamm asked Edelman how a person who has failed to start saving early can make up for getting a slow start. “It’s never been easier thanks to the Internet, and exchange traded funds and products of that type,” Edelman said. “Investing has gotten cheaper, it’s gotten easier, it’s gotten faster, it’s gotten safer.”
“Exponential technology also brings with it exponential growth… compound interest,” Edelman said.
And when you take advantage of saving not for 20 or 30 years but for 50, 60 years, you’d be amazed how much wealth you can create.
The Growth Of The Gig Economy
Gamm pointed out a person can also create wealth by having a “side hustle” as opposed to a 9-to-5 job. Edelman agreed. “Thanks to the gig economy, the shared economy, you have the ability to make money on a part time basis with very low risk, very low barrier to entry,” he said. “Anybody can do this, and an awful lot of Americans are.”
He said 16% of American workers are strictly working as contractors who work only when they feel like it.
Will The Trump Rally Continue?
Noting that some people might be afraid to invest in the markets, Gramm asked Edelman what he thinks of the Trump stock rally. “We’re going to see a continuation of this for the next several decades,” Edelman said.
Over the last 50- or 60-year period, the DJIA has increased. “There’s no reason to think that won’t continue, in fact, financial technology makes that easier,” Edelman said. “We’re going to see incredible profits in the United States as well as globally.”
In his first market update to his clients last month, Edelman noted that the DJIA was up 11 percent since the election, and the S&P 500 index was up 9 percent. If this pace continues, he said stock prices will gain 24 percent this year alone.
He acknowledged there is concern that the “Trump Rally” will fizzle, and that it’s simply the “honeymoon period” new presidents typically experience. Trump’s failure to repeal the Obamacare also fuels this concern since Trump promised he would repeal Obamacare.
Should Trump also fail to reform the tax code and rein in the budget, will stock prices fall?
Why Trump Doesn’t Own The Rally
Edelman claims it’s incorrect to believe that the rise in stock prices is only due to Trump. While the election has excited investors since he’s seen as a business-friendly president, that’s not the only reason stock prices are up. Edelman points to the following economic factors fueling rising stock prices:
• U.S. corporate earnings increased 8% in the fourth quarter. Profits from overseas operations, meanwhile, rose 14.5% compared to the same period the prior year. This marks the biggest advance since mid-2010, according to the U.S. Commerce Department.
• Individuals, not just companies, are now making more money. Personal income is up 4.6% compared to the prior year. Salaries and wages are up 5.5%, according to the Bureau of Economic Analysis.
• The overall economy is growing. According to the Bureau of Economic Analysis, gross domestic product increased 2.1% in the fourth quarter.
• Consumer confidence rose in March to its highest level in 16 years, according to The Conference Board.
When people are confident they will continue to make more money, they are willing to spend more, Edelman noted.
Hence, sales of newly-built homes increased 6% in February, marking a 20% gain over February 2016 and the largest increase in five years.
The president cannot claim responsibility for much of the improvement, Edelman noted. But his positive attitude and his statements that please Wall Street contribute to the country’ economic improvement.
Trump wants to:
• reduce corporate and individual tax rates
• reduce regulation
• increase jobs
• bolster U.S. competitiveness in foreign markets
• repatriate billions U.S. corporations have overseas
• spend $1 trillion on infrastructure
Such positions please investors since they support an environment for improved corporate profits which translates into higher stock prices.
What If Stocks Fall?
The question remains: if Trump fails to pass his policies, will stock prices fall?
This is possible, Edelman noted. Hence, he gives the following advice:
He reminds his clients that portfolio diversification is important since it helps manage risks if stock prices fall. His company’s managed asset program is not totally invested in U.S. stocks.
Strategic rebalancing is also important. Most Edelman managed asset portfolios have been rebalanced this year. The company has been a seller, not a buyer, of over-performing funds. This is a way to maintain proper asset allocation.
Third, Edelman reminds clients of a core market truth. A stock price decline is not synonymous with a loss. Investors should consider what happens after a decline. History indicates stock prices move only in two directions: up and down. If prices drop, sit back and wait. Because markets move in cycles, prices eventually rise. It is always important to remember, however, that past performance does not guarantee future results.
Fourth, keep in mind every new president suffers slips in his early days, and Trump is no exception.
President Clinton failed to pass a health care overhaul in his first term. George H.W. Bush sent commodities prices into a spiral by saying he hates broccoli. The stock market survived such “crises.”
Fifth, keep in mind the stock market has increased dramatically in the last six months. Even if the Dow fell 10 percent, it would still be ahead of where it was on Election Day.
Consider All Aspects Of Financial Security
Lastly, consider that a person’s financial security will not be determined primarily by any president or Congress. A person determines their own future.
Every individual must focus on the aspects of their personal finances that they can control. This includes making sure wills and trusts are up to date, that too much in interest isn’t being paid on the mortgage, that one has the right kind and amount of insurance, the right amount of cash reserves on hand, and proper contributions are being made to retirement plans.
Edelman is chairman and CEO of Edelman Financial Services LLC. He has a radio show, six books, a column, conferences and nearly half a dozen appearances on Oprah. His books include “The Truth About Money; Ordinary People, Extraordinary Wealth” and “The Lies About Money.”