Quote Originally Posted by Securitized View Post
Only mindless chatter sounds through Wall Street and none of it should affect you. Here's why:

1. Dow Jones Industrial Average is composed of 30 companies. Hence, the daily ups and downs of the DJIA only reflect the performance of those specific 30 companies whereas your personal portfolio may not include a single one of these DJIA companies.

2. The S&P 500 index, which contains the largest 500 American corporations by market cap, is more reflective of the overall economy than the DJIA, but it should also be ignored along with the DJIA. The reason it's not important is because the weighting of each company is based on market cap and your portfolio is likely weighted completely different then the S&P 500 composite. So, if the S&P 500 goes down 1% then you shouldn't expect your portfolio to mimic the same negative performance. However, if your core position is an ETF that tracks the S&P 500 then your portfolio performance will resemble the S&P 500's daily vicissitudes.

3. The same reasoning in regards to company weighting for the S&P 500 also explains why the daily ups and downs in the NASDAQ can be ignored.

Forget Wall Street. Instead, an investor should be paying attention to what's going on in the Chicago Board Options Exchange and I'm speaking specifically about what the 10-Year U.S. Treasury yield is doing. This yield WILL have a direct impact on the cost of consumer loans, credit card interest rates, mortgage rates, consumer spending habits, stock prices (P/E ratios), savings interest rates, etc. Also, higher yields often forecast future inflation so this can give you a head's up that things like groceries, gasoline, houses, cars, and consumer goods will likely get more expensive.
I think that all makes sense except for the part about Wall Street not affecting us. Institutional investors make up about 70% of all stock trading volume despite only owning about 17% of all financial assets. That tells me that institutional money moves the market and the rest of us are just along for the ride.

That's why I like ETFs. I know I can't beat the market because I know that people who get paid millions usually can't so I'll just ride along knowing that I'm going to 'win' over time just by putting my money in.