Valuations Greater than 1929 and 2000!

Massive

U.S. Stock Market

Overvaluation!

It’s all Fun and Games

Till Someone Get HURT!

Advisor Perspectives

DYI:  Amazingly the 37% correction at its bottom valuations remained HIGHER than 1929 top!  Once again we are at stratospheric high valuation(s) level.  These valuations are telling us that future returns will be dismal at best. 

How miniscule will these returns be?  Going to money chimp using their calculator for future returns (including dividend reinvested) – stocks purchased or held today go to sleep like Rip Van Winkle waking ten years hence – you will earn as estimated average annual return – [drum roll please] – 0.16%!  Of course this is BEFORE all expenses such as management fees (1.0%), commissions (0.25%), trading impact costs (0.50%) and INFLATION (2.0%).  The REAL return after all expenses is (average annual return) negative -3.59%! 

With projected returns so low – this example would be for an S&P 500 index fund or your average managed growth fund – purchasing this tier of stocks is a fool’s errand.  As I’ve stated before by avoiding the high flying wonder stocks (along with their massive valuations) there remains a high quality sector named equity income funds such as my favorite being Vanguard’s Equity Income fund symbol VEIPX.

Plugging in the numbers at money chimp Vanguard’s average PE is 18 times earnings with a current dividend yield of 2.96%.  Purchase this fund – or other similar equity income funds – your estimated 10 year average annual return for monies placed today is 6.77%.  At least this return (average annual 10 years) for an equity income funds that is in most 401k’s after all expenses would be 3.02%.  This compares to most long maturity corporate bond funds of high quality – [no high yield or junk bonds] around 3.00%.  Except for inflation their expenses will be lower – [depending on the fund] – of around 0.50% and 2.0% inflation.  So…The real return – for money placed today held for 10 years – very close to the initial yield going in.  Bottom line is a scant 0.50% welcome to our Federal Reserve’s insane policies that has plummeted future returns.

Any wonder why speculation is so pervasive especially with more and more stock operators crowding into the giant five – [Apple, Google, Face Book, Amazon, and Microsoft] providing the rocket fuel for market gains.  Of course their valuations have left planet earth and have long since entered into the insane asylum and as my title states:  It’s all fun and games till someone gets hurt.  Once this bubble pops – as all bubbles will – at the minimum their stock price will be cut in half.  More likely from ultimate top to absolute bottom anticipate around 85% decline!

Till Next Time

DYI