It is good to pause and acknowledge milestones - celebrate them even - because threshold numbers like these are important markers along the way in terms of measuring your portfolio's growth.  But what does the stock market index climbing above 6000 really mean for investors.

Let's put some historical context around our sharemarket's growth. At the end of October 1985 our market index was at 1000. When the market closed above 6000 yesterday that represented a cumulative return from October 1985 of 1276%.

It then took eight years for the market to break through the 2000 barrier - that was October 1993. Since then its growth picked up the pace slightly. It took 5.5 years to climb from 2000 to 3000 which was first breached in April 1999.

From there it took nearly six years to achieve the 4000 threshold - remember between 1999 and December 2004 we had some major sharemarket shocks like the tech wreck of 2000.

But since then the Australian market has had its sprinting shoes on. From 4000 to 5000 took just 15 months while the climb to yesterday's record of 6000 was completed in just nine months.

But of course the rise from 5000 to 6000 is not nearly as significant as the climb from 1000 to 2000. Consider the total returns for the various periods. We have used the broader S&P/ASX300 accumulation index because it captures dividends as well as price growth. The market's move from 1000 to 2000 represented a total return of 189%. The latest 1000 point rise represented a 20.7% return for investors.

So while the latest 1000 point milestone has been achieved in record time it is not nearly as significant in return terms. In fact if you look at how long it took the market to double from 3000 to 6000 it is 7.9 years - just 3 months faster than the time it took to get from 1000 to 2000.

When we are looking at index thresholds it is also worth remembering the basic premise for investing in market indexes in the first place.

An index is a way of measuring the value and therefore performance of a particular market. The index can cover broad markets - like the S&P/ASX300 index - or specific market sectors like listed property trusts without mentioning the huge array of world market indexes.

To invest in the index is to invest in the market it tracks or represents. When you do that you are investing in the potential economic growth of the companies that make up the index. Short-term speculation can bounce markets around but in the long run the sharemarket reflects the economic value and growth generated by our listed companies.

Benjamin Graham perhaps said it best in his investment classic, The Intelligent Investor.
"In the short run the sharemarket is a voting machine ... in the long run it is a weighing machine".

Smart Investing
By Robin Bowerman
23rd February 2007
Principal & Head of Retail, Vanguard Investments Australia