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S&P 500 Record High

Why an S&P 500 Record Means More for You Than a Dow High
by Dan Caplinger

Amid all the attention the Dow Jones Industrial Average (^DJI) has gotten with its series of record-setting highs, many investors haven’t noticed that the S&P 500 (^GSPC) has also cozied up toward its own high-water mark. If the benchmark closes above 1,565 — just a few points above where it closed Friday — it will top the record it set back on Oct. 9, 2007.

With the Dow already in new territory, why should you care about a potential S&P record? For one thing, the S&P 500 represents a much bigger cross-section of the U.S. stock market than the Dow does.

The DJIA only reflects how 30 of the top companies in the world are performing. Often, if the Dow does well when other market measures aren’t posting gains, it suggests that smaller companies are facing challenges that the biggest companies are able to overcome, and that disparity can end up causing bigger economic problems down the road.

By contrast, the S&P 500 following the Dow upward to new highs indicates that the entire market — rather than just leading companies — is enjoying the fruits of the four-year economic recovery.

Winners…

But just because the S&P is back near record highs doesn’t mean that all 500 stocks have moved in lockstep. Some of the S&P’s components have done extremely well, while others have lagged behind and not contributed at all to a record run.

What Should You Do Next?

A new record high for the S&P 500 indicates generally good conditions for the entire stock market. But it shouldn’t lead you to change your overall investing strategy.

Investing in both good times and bad is the best way to move steadily toward your financial goals. But it’s a good time to check your investments and make sure that you’re not taking on more risk than you thought. With stock prices at attractively high levels, if you need to rebalance some of your holdings to reduce your risk level, now’s the perfect time to do so.

Other than that, though, sit back and enjoy the hoopla over a new S&P record high — whenever it comes.

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