YouTube

Financial Experts?

They Never Discuss VALUATIONS!

The problem with so many of these videos is ZERO discussion regarding valuations. Such as the all important Shiller PE, dividend yield or current interest rates. All very simplistic simply stating buy the S&P 500 no matter the level of valuations and everything will just be fine. Hold long enough and you will always reach the magical 10% return!

Currently today the Shiller PE is at nose bleed levels at 38 times income generated by the corporations who make up the S&P 500 https://www.multpl.com/shiller-pe The long term average since 1872 (that's right 1872) is 17 times earnings. This valuation is now greater than 1929 but less than the year 2000. Add on a tiny dividend yield of 1.22% (avg. is 4.24%) https://www.multpl.com/s-p-500-dividend-yield

So...Let's put this all together we know on average how fast the economy, corporate profits will increase on an average basis this return will be [very] close to the anticipated return over a 10 year period. The Shiller PE is 38 the average is 17 and the current yield is 1.22%. Simple algebra don't worry lets go to money chimp and let them do the math. http://www.moneychimp.com/features/market_predictor.htm

Enter the this data for the next 10 years for stocks bought or held today - go to sleep like Rip Van Winkle - awake 2034 your estimated average annual return will be - drum roll please - NEGATIVE 1.92%!!

Please note this is before any expenses such as a 1% or 2% to run the mutual fund AND of course the ever present INFLATION. [If your 401k has fee's of 1% or greater open with Vanguard their Roth IRA and only 401k up to the match any monies left over use a low cost provider such as Vanguard in a taxable account (non retirement).

Bottom line this is a very bad time to buy stocks or a whole sale basis such as a S&P 500 index fund or a general growth fund so prevalent in 401k's.

One last item for ultra long term types. Lets change the holding period from 10 to 20 years for these dollars invested today. Drum roll please - POSITIVE 2.06% average annual return estimated. How bout 30 years...Drummer please - POSITIVE 3.42% After inflation and fee's Alpo will become your favorite meal in retirement.

What to do for the your stock to bond or your stock, bond, gold allocation. Follow my blog and copy down the math as I'm currently 70 years old (still in good health) but I won't be be around forever.

Till Next Time