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Right now, many US stocks are overvalued and are at high risk for a correction within the next few years. Using historical averages for the last 20 years, the C
by fbelzile 6y ago
Right now, many US stocks are overvalued and are at high risk for a correction within the next few years. Using historical averages for the last 20 years, the CAPE ratio for the US market is projecting returns to be only -3% to +3% for the next decade. Interest rates at are an all time low though, which may push expected returns up a bit from those numbers, but interest rates probably won't stay low forever. US index funds are a risky play right now.
Not all stocks are overvalued though. Look into buying value stocks that pay large dividends. Unsexy REITs, tobacco, bank stocks might be worth looking into again, as well as international or emerging market ETFs.
Bitcoin looks over-sold right now, but gold is relatively cheap as a hedge against inflation. The Fed pumping huge amounts of money into the economy will eventually lead to inflation. It might take a while though, since people need to be able to spend that money for inflation to happen. Various lock downs around the world are preventing this from happening, currently. If you're patient, I think gold and other commodities (Uranium possibly) are going to do well over the next few years. I think there are a lot of people buying Bitcoin as speculation and as soon as you have numbers go red, there might be a mass sell-off and switch to gold. The last Bitcoin halving event was just this past May which usually leads to surge in price as mining becomes more affordable, but as with other cycles, miners may start selling (since you can't yet pay bills with it) and prices will go down again until the next halving cycle.
To put things into perspective though: Aside from owning property, I'm about 5% REIT, 5% Gold, 20% Canadian index ETF (Canadian here), 30% international index ETFs, 10% US value stocks, 20% bonds, 10% cash.
I am not a financial advisor, please do your own DD.
- dyeje 6y ago> US index funds are a risky play right now. Why?
- fbelzile 6y agoBecause of the historical high cyclically-adjusted price to earnings ratio (CAPE) of the US market [1]. I agree that historically low interest rates counter part of this argument, but overall, I still think there will be a reversion to the mean. Nobody knows if it'll be a sharp correction, or if prices will stagnate until earnings catch up. Maybe I shouldn't have said risky. You're right that if retirement is a while away, you can continue not timing the market and you'll be okay. However, if you want to be more aggressive, it might be smart to sell some of the gains you've made in the US market thus far and allocate more to emerging market ETFs with more upside. Using the CAPE ratio to project estimated returns has shown to be fairly accurate from 1995 to now [2]. There's no guarantee it'll continue to be true, but I think there's more upside to international equities for the next decade right now. [1] https://www.starcapital.de/en/research/stock-market-valuation/ https://www.starcapital.de/en/research/stock-market-valuatio... [2] https://www.advisorperspectives.com/articles/2020/07/20/the-remarkable-accuracy-of-cape-as-a-predictor-of-returns-1 https://www.advisorperspectives.com/articles/2020/07/20/the-...
- Gustomaximus 6y ago> Bitcoin looks over-sold right now Loads of talk for crypto for years now. They yet unproven, and it seems its more about speculation than use at the moment with very little high street economic use. Im mixed as it seems the future....because tech, but also consider governments use localised currency to profit + control economies. And currency by nation actually adds a really good buffer to shifting world economies, monetary policy, debt payment etc and could cause serious issues if bitcoin became the global trade currency. There is a reason we dont all use USD, and you see how failing nations actively fight their economies from using USD or another nations currency. Why would the world governments then allow bitcoin or other? Maybe cause it gets too big and cant be stopped without annoying voters? Maybe there is some failed state event with major nations and people rush to it? But assuming the world continues along within reasonable ups/downs, why would people you move to bitcoin as day-to-day from a practical sense and why would governments not strongly resist this? Apologies if overdone topic but curious why people believe in the fundamental of use vs speculative price growth.
- Graffur 6y agoYou can move value between two parties without a third party allowing you to do it. That's the proof. Whether you value that or not is not important.