What was until recently an unloved bull market has now reached the point of “euphoria,” and investors are “having a hard time imagining a decline,” according to Morgan Stanley.
After all, what’s not to love about a bull market that has only two directions – up… and up faster?
It’s being called a “market melt-up,” and the main fear people now have is of missing out.
Those caught up in the euphoria – and the fear of missing out – might want to consider the following:
- The S&P 500 is trading at 2.3 times its companies’ sales – a smidgen below its dot-com peak
- Price-earnings ratios have only been higher for 1% of the stock index’s history
- The cyclically adjusted price-earnings ratio is higher than before the crash of 1929, and higher than at any moment in history except right before the dot-com crash
Those of us who experienced the pain of the dot-com meltdown in 2002 and the financial crash of 2008 hope that the market will never become that irrationally exuberant again.
Back then, people justified their exuberance with the mantra that “this time it’s different.”
And that was their downfall, because history has shown that it’s only different… until it’s not.
Have you been out to dinner at a nice restaurant since the start of the year?
Typically, in January people take a breather from spending, as they nurse their holiday spending hangover.
Not this year. Restaurants everywhere are packed.
It’s all thanks to the “wealth effect” – people are feeling wealthy, thanks to the gains in the stock market, new tax cuts for many, and paycheck increases for some.
So people spend rather than save, and they are going more into debt to do it. That’s why the savings rate is dropping and consumer debt is climbing.
Many people are woefully unprepared for the inevitable market meltdown, and it’s a recipe for disaster.
So what can you do?
Here Are 4 Tips for Being Prepared For the Next Market Meltdown:
Tip #1: Make building up your rainy-day fund a priority
Tip #2: Ignore the conventional advice of having an emergency fund of 3-6 months’ worth of expenses. During the last financial crisis, many people were out of work for 1 to 2 years, or longer. Make sure you have an amount equal to two years of expenses in safe and liquid savings to help you weather whatever challenges life throws at you
Tip #3: Don’t forget history – we’re in the second-longest-running bull market in history, and the longest-running bull markets go out “with a bang, not a whimper”
Tip #4: Avoid the very human urge to follow the crowd. As Marshall Thurber observed, “All the dogs barking up the wrong tree don’t make it the right one.”
Why You Need Dow 41,000 TODAY
When do you think the Dow Jones Industrial Average (which is over 25,000 this month) will hit 41,000?
I ask this question because the Dow has gone up over time… but has it gone up enough to make it worth the risk you’ve taken?
Most people we’ve surveyed say that anything less than a 5% to 8% annual return in the market is unacceptable.
But consider this: The Dow first hit 11,000 in 1999. Today – 19 years later – it’s 230% higher.
However, when you factor in the inflation we’ve had over the last 19 years, you discover the Dow has had a real annual growth rate of only 4.5%!
To keep up with inflation and grow just 5% annually beyond inflation, the Dow would need to be over 41,000 today – a full 60% higher than it is at this writing.
This is a reality I’ve been talking about for years. Back in 2012, I wrote about why you need the Dow to be at 27,000 today.
It’s a good reminder that you need to look deeper than the numbers of the stock market indexes to see if you’re really accomplishing your goals for growth of your nest egg.
The Very Best Place to Put Money You Need to Keep Safe and Liquid is in a Bank On Yourself Plan
A Bank On Yourself-type high-cash-value dividend-paying whole life policy comes with an unbeatable combination of advantages, which include:
- Guaranteed, predictable growth every year – even when the markets are crashing
- It’s a supercharged variation of an asset that has never had a losing year in more than 160 years
- Liquidity and control of your money – get access to it when and for whatever you want, no questions asked
- It’s backed by a five-layer safety net
- It comes with numerous tax advantages, including tax-deferred growth and tax-free withdrawals, under current tax law
It’s easy to find out what your bottom-line numbers and results could be if you added the Bank On Yourself safe wealth-building method to your financial plan. Just request your free, no-obligation Analysis here, if you haven’t already.