Originally published at: https://peakprosperity.com/investing-when-stocks-are-the-most-expensive-theyve-ever-been/
Welcome to this next installment of Finance U. Today’s topics are especially important for anyone with wealth to preserve and protect.
Let’s cut to the chase: Today’s financial markets, or ““markets”” as I like to refer to them to convey just how distorted they’ve become, are not just extremely expensive by practically every single historical measure, they are record expensive.
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Whether we are measuring stocks by Price-to-Book, the “Euphoriometer” index measuring bullishness, or the ‘Buffet Indicator' which is the total value of all equities divided by GDP, the result is the same; US equities have never been this expensive before in history.
Let me repeat that; never.
So we’re in uncharted territory in that respect. But history has been very clear on what happens when equities become expensive – future returns suck.
So where people ought to have the expectation of lousy returns (hey, we can all hope for great returns, but we should not expect them starting from these levels) they often have recent returns as their internal guide for how the future will unfold.
Historically speaking, that is a lousy bet to make, but many people are unfortunately making exactly that error with their retirement planning.
Enter proper risk-based portfolio management and retirement planning. Paul Kike of Kiker Wealth Management takes us through one of the sophisticated tools his firm uses to help guide people toward the best possible chance of success, defined as “having one’s money last for the entire length of their retirement.”
Naturally, one has to make some starting assumptions about the desired level of spending, future inflation, and retirement age. Often people go through this process and realize that they either have to adjust their spending levels or, that they’re in fine shape and can relax a bit. Either way, they know what they need to know to navigate the future successfully.
I am pleased to introduce everyone to this way of approaching investment and retirement planning because (a) it gets the right elements on the table for productive decision-making and (b) did I mention that stocks are stupid expensive right now?
Finally, with the collapse in Chinese government bond yields and the re-steepening of the US yield curve we’ve got plenty of creaking and popping sounds that are consistent with economic difficulties. As is always true, it’s far better to be early in one’s planning than late!
