From a historical viewpoint, that is almost average.  What is unusual is that this is the sixth straight year of a bull market, which tells us more about the severity of the Great Recession than it does about the Dow.

From a technical viewpoint, analysts wonder if the Dow was still improving as the year ended (it wasn’t).  We wonder if the market appreciation was widespread — limited to a few stocks or the whole market — it was widespread.

From an allocation viewpoint, the Dow index measures only 30 stocks of the mega-large companies.  Did mid-sized and small companies also participate in the bull market?  (While small-caps did not appreciate as much over the full year, they were appreciating faster at year-end.)

From a sector viewpoint, since the Dow is mostly multi-national companies and will suffer from the stronger dollar, what other sectors did well?  (Technology, especially biotech, which are not in the Dow.)

Of course, the first thing most investors wonder is whether their individual portfolio was up 7.5%, which is unrealistic unless the Dow was their benchmark.

The most important question is what was the risk-adjusted rate of growth?  Is 7.5% return good?  No, not if you took a lot of risk.  Yes, if you took little risk.  Unfortunately, measuring risk remains more art than science.  Investment theorists rely on the standard deviation of share prices over time, which has certain statistical benefits but is not readily understandable by most investors, who have to rely on their own “street sense.”  For example, are you diversified among stocks, with no more than 5-10% in any one stock?  Are you diversified across many asset classes, such as large-cap, mid-cap, and small-cap stocks?  Do you have any international exposure?  (Even if you are just an income-investor, you can still have a fairly diversified portfolio.)

Intuitively, I am convinced that the primary risk that is statistically ignored by traditional risk-adjusted analysis is geopolitical risk.  Was 7.5% for the Dow good — given the amount of geopolitical risk last year?  The good news is that much progress has been made in quantifying geopolitical risk over the last two years.  Risk-adjusted rates of return will soon escape the realm of theorists and be available to investors . . . finally!