Tom Nash
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Big News For U.S. Stock Market Investors
🕑 Added 2024-11-03 10:17:45 +0000 UTCAlright, folks, we’ve got some big news in the Dow Jones: Intel’s out, and Nvidia’s in.
Intel was a staple in the Dow for 25 years and it just got the boot. Why?
Well, if you can’t keep up with the pace you are out. So, the Dow kicked Intel and welcomed Nvidia, the new kid on the block who’s busy running laps around the competition.
This shake up might sound like just another Wall Street headline, but it actually reveals a big secret about why the U.S. stock market keeps rising over time.
Spoiler: it’s because the indexes keep refreshing their lineups with stronger players. Think of it like sports, if you want to keep winning, you need to keep the MVPs in the game.
Imagine if the Dow Jones were a talent show. Only the best get to stay, and if you’re losing your edge, you’re out. Intel used to be the tech darling; now, not so much. The index isn’t sentimental, it doesn’t care about history. If you’re not performing, you’re shown the door, and someone newer, faster, and way cooler takes your place.
This isn’t new either. The Dow’s been doing this since 1896! General Electric was in there for over a century, then, poof, it was out in 2018.
The goal? Keep the index representing companies that are actually shaping the economy today, not yesterday. And that’s the secret sauce for why these indexes keep going up over the long term.
Let’s take a quick trip down memory lane because the Dow has lived through it all: world wars, depressions, dot com booms, busts, you name it. And, guess what? It survived, all because it’s always swapping out the old timers for fresh blood.
Back in the 1930s, the Dow had a pretty rough go of it (understatement of the century). But by the end of the 1940s, it was back on track. Why? It started adding companies that were actually growing in the post-war economy.
Remember when banks were going under faster than a bad reality TV show back in 2008? The Dow lost some heavy hitters but bounced back stronger with companies that thrived in the recovery.
2020 was a rollercoaster. But the Dow didn’t just survive, it thrived.
The point is, the Dow’s lineup evolves, and that’s why it will always be on top.
Look, not everyone has time to be a stock-picking wizard. That’s where index investing shines. By investing in indexes like the Dow or the S&P 500, you’re basically signing up for a front-row seat to the market’s “best of” playlist. You get a piece of all the big players, and if one falls off, it gets swapped for a new chart-topper.
You’re not betting the farm on any one stock, so if one flops, you’ve got others holding up the show. No need to pay loads of fees. The market has historically grown about 10% a year on average, which, yes, includes all the crashes and meltdowns.
Even Warren Buffett, a guy who could probably beat the market in his sleep, recommends index funds.
So, why did Intel get the axe?
In short, it lost its edge. Nvidia, on the other hand, is at the top of its game with everything from AI to data centers. Intel’s been lagging while Nvidia’s out there playing chess while Intel’s playing checkers.
Intel, just like General Electric, Exxon, Pfizer, all got the boot when they stopped keeping up. That’s why index investing works, indexes aren’t here to give gold stars for attendance. If you’re not pulling your weight, it’s see ya later.
Now, let’s talk about Nvidia. By adding Nvidia, the Dow’s staying relevant, adapting to a world where AI, digital services, and cloud computing are the new powerhouses.
For investors, Nvidia’s entry means more exposure to a high growth company. When index funds add Nvidia, more money flows into it, which can lead to even more gains. Indexes staying nimble like this is why they keep on winning.
These indexes grow because they keep adding strong companies, so as the economy evolves, your investment does, too.
Sure, you’ll get some rocky months and even years (like when 2020 decided to throw the market into a blender). But over the long haul, those ups and downs even out, and the steady march upward takes over.
Bottom line: Index investing is like a ticket to the market’s greatest hits album. It’s diversified, it’s stress free, and, over the long term, it grows. So if you’re looking for a way to build wealth without constantly checking stock tickers, this is it. With Nvidia now on the roster, the Dow’s staying sharp, and that’s great news for anyone along for the ride.
Invest smart, don’t sweat the small stuff, and remember: you’re in this for the long haul. The stock market will keep evolving, and if you’re invested in indexes, you’re already on the winning team.
Tom
Comments
EV Bike Dude
For those of us in Europe subject to PRIPS/unable to get VOO, we can use Amundi's "500" which tracks it.
David Hensey
Thanks I appreciate the info.
Generico Fakero
Not a stupid question at all David: VOO is the ticker for thr sp500
David Hensey
Ok stupid question Tom. I have invested in stocks, and options, but have never purchased an ETF for the DOW or S&P 500. What is the symbol to do that? Again, I apologize for asking such an elementary question.
Jack M
Thank you for the reassurance. I'm retiring and rolling over a 401k and am allocating 40% of it to SP500. I'm staying the course, much appreciated.
Generico Fakero
Thanks R
Generico Fakero
They have been say the sp500 is cooked for 20 years
Budapest_Trader
This is a very important way of highlighting why major US stock market indices will ultimately always keep rising. Great job and Thank You Tom.
Jack M
Great analogy Tom. Hope SPX retains it's charm, despite some of the recent naysayers such as Goldman Sachs! I'm in with my retirement counting on it.
Generico Fakero
🫡
Krishna Kattamuri
Thanks Tom for reiterating the concepts through this post.
Generico Fakero
TY
G P Singh
Best n trustworthy analysis, always
