Wealth management is often associated with the word “No”. Got any hot stock tips? No. Should we be investing like that guy on TV? No and a speedboat is not an investment. Being negative all the time is no fun for us either, so here are some things to be positive about.
In the last 10 years, we experienced the worst stock market decline since the Great Depression, but an investment in the S&P 500 at the market top still would have doubled your money. Since the financial crisis, experts have predicted an extended period of low single-digit returns for equities. Folks that listened to these experts missed out on a huge bull run.
Domestic equity valuations are elevated, but by much less than is commonly reported. The cyclically adjusted price/earnings (CAPE) ratio is the most cited example of rich valuations with today’s CAPE about 80% higher than its historic average. That average goes back to 1881, though, and using it as a timing device would have kept you out of the stock market since 1994. Comparing today’s CAPE to the average over the last 20 years, however, shows valuations only 12% higher than average. Again, this isn’t a signal to buy or sell stocks, but it’s a reminder that it’s never as bad as they say on TV.
Bad news is just fine, though. One of the symptoms of a bubble is euphoria. Do today’s news headlines look optimistic about anything, let alone euphoric? If there is a bubble in anything, it’s in depressing news! The stock market continues to climb a wall of worry while reporters recycle the same worries each year. A Google search for “stock market bubble” will yield results going back to at least 2010 saying the market is in a bubble.
You have an advantage. While professional money managers mark time in 3-month increments, you have the luxury of a long-term investment horizon. Their returns are under the microscope every quarter. Your returns compound to fund your financial goals. Their incentive is to not lose over the short term. Your incentive is to win over the long term. Time is the ultimate edge. You don’t have to be a genius or have an Ivy-league pedigree to succeed in investing. More than anything, it takes patience.