How concerned are you about the Everything Bubble?

[kenmoremmm]

would love to see the perspective of the community. i suspect with the buy and hold mentality, that the general consensus is 'not much'.

[TheHardenedInvestor]

There is always an everything bubble. Always.

[lowroller4111]

not concerned.. the formation of bubbles and their subsequent implosion is in the nature of markets.  A good long term investment plan should not be bothered by it, infact in the accumulation phase it's a great opportunity to reduce cost basis.

[seattlecyclone]

Seems to me that bubbles are most dangerous when only some things are overvalued. The bubble pops and the people holding the overvalued assets are in bad shape relative to the people who own other stuff that wasn't subject to the bubble. But if literally everything is overvalued, what happens when the bubble pops? We all agree that the price of everything should go down by a similar amount? So what?

[Laserjet3051]

concerned about equity collapse, not an everything bubble. a well constructed portfolio should be able to withstand most foreseeable crises.

[socalrider]

Yup.  If everything is overvalued, then nothing is overvalued.  Value is 100% relative.  What is a dollar worth?

[maizefolk]

I mean I'd prefer we weren't in an everything bubble. In that case the same number of dollars I'm investing into the market would be buying me bigger chunks of companies. But what can you do?

Either eventually markets will pull back and I'll be getting a better deal on my monthly investments, or this is the new normal and they won't.

[Heckler]

Not concerned at all.

I realized that my 70/30 allocation, currently at 75/25, still within my 6% reallocate line, should have me holding onto my new cash as part of my fixed income (making my allocation closer to intended without selling anything) so that I can take advantage of the next Oct-December 2018 opportunities and rebalance without spending commissions ($10/ETF trade).   I don't know how else to follow Buffet's "be greedy when others are fearful", but it makes sense to me.

Real Estate is still hovering at 3X our purchase price 16 years ago.  Not concerned at all.

[BTDretire]

concerned about equity collapse, not an everything bubble. a well constructed portfolio should be able to withstand most foreseeable crises.

  Might I suggest that the advice often seen here, of 100% equities is not a well constructed portfolio.
Although, in the long run it may provide the highest return, it could also cause lean times during the withdrawal period.

[ChpBstrd]

Seems to me that bubbles are most dangerous when only some things are overvalued. The bubble pops and the people holding the overvalued assets are in bad shape relative to the people who own other stuff that wasn't subject to the bubble. But if literally everything is overvalued, what happens when the bubble pops? We all agree that the price of everything should go down by a similar amount? So what?

The popping of an everything bubble would involve the stock market returning to a historically normal PE ratio around 15, investment grade bonds again yielding a historically normal 6-8%, real estate earning over 1% of its value in monthly rent, and savings accounts, CDs, or treasuries yielding 5-6%.

To reach these historically normal levels, stocks, bonds, and real estate would need to fall 40%ish in market price. The problem is that we can safely assume groceries, rents, transportation, and healthcare would not drop in price with such a scenario.

To quantify my concern, I use an options strategy called a collar to protect against a decline in prices of greater than 7-8% and pay about 2% of my portfolio per year for this protection, except in years like 2018 where my hedges actually earned money.

[JAYSLOL]

The everything bubble?  Like, our ever-expanding universe?  Yeah, somewhat concerned, will a large meteor strike earth in my lifetime? is there alien life out there? can Thanos be defeated?  So many questions about our universe.  All kidding aside, no I don't worry about normal financial bubbles, I can neither predict or control them, so I relax and ride out whatever happens.  The higher my savings rate gets the less I tend to worry about market crashes or job loss or whatever worries haunt most people.  Pre-MMM when I was saving sub-10% of my income I had a lot more worries about investing at the wrong time, now that I'm at nearly 50% I don't worry about markets at all.  Weird how that works. 

[Maenad]

The last year or two I've seen the doomsayers uttering a lot of "only the FAANGs and similar stocks are soaring, the market's growth is giving us a false sense of security because this one sector is so heavily weighted, we're in for another 2000-style meltdown" etc. etc.

Now that all sectors are seeing growth it's an "everything bubble"? Bears are gonna bear, I guess. Some day they'll be right and feel vindicated, good for them.

[vand]

Yup, fairly concerned.. but also accepting there's nothing I can do about it.

I do have a significant amount of my wealth in my own version of a "permanent portfolio" with uncorrelated assets; my expectation is that if and when the everything bubble goes tits and paper assets are smashed, the real assets will compensate accordingly.

[J Boogie]

If you feel like your investing opportunities are negatively affected by low interest rates, you can use REML as a way to benefit from these low interest rates. It's 2x leveraged REIT but it yields 20%. As long as it's raining we might as well get buckets until it stops.

[CorpRaider]

I don't see an everything bubble.  Non U.S. stocks are cheap based on existing data and super duper cheap relative to current world interest rates.

[Enigma]

Everything bubble sounds like buying opportunities

[sol]

Either eventually markets will pull back and I'll be getting a better deal on my monthly investments, or this is the new normal and they won't.

This feels like useful advice that offers real clarity on what you should do next.  If option A, stay the course and buy more equities.  If option B, stay the course and buy more equities.  Way to cut through the noise, maizeman.

[ysette9]

Every time in the past I’ve thought that stock X would go up or down I’ve pretty much uniformly been completely wrong. So I don’t try to play that game anymore. Sometimes my gut is right and mostly it is wrong. So we have a plan that is based on our personal situation and not market indicators. We write it down, discuss and agree, and then follow it like clockwork.

We are increasing our bonds right now because of how close we are to our FI number. If that happens to hedge against some future downturn then so be it. If it means we miss out on some of a future run-up, so be it. It is like buying a house when it is right for your personal situation, not when some real estate agent tells you that you have to jump and buy because X.

[DadJokes]

I am fairly early in my investing life, and I have good job security. I wish whatever the next bubble is would burst already, so I can load up on low cost stocks at this ideal time.

[MaaS]

Yup.  If everything is overvalued, then nothing is overvalued.  Value is 100% relative.  What is a dollar worth?

Meh. Disagree.

I agree that when talking about products and services, something is worth what others are willing to pay. But, with an investment?

Not sure that logic holds up when your intent is to resell. The value of buying a piece of a company is in it's future perceived value. If it's your belief that that perceived value will be lower in the future, then to you, it's currently overvalued. You may be wrong, of course.

[frugledoc]

Not concerned. Just bought 35k equities with a new lump sum.  I’m in a government pension scheme so will just stick with my 100% equities all world.

[thd7t]

concerned about equity collapse, not an everything bubble. a well constructed portfolio should be able to withstand most foreseeable crises.

  Might I suggest that the advice often seen here, of 100% equities is not a well constructed portfolio.
Although, in the long run it may provide the highest return, it could also cause lean times during the withdrawal period.

I've always felt that the 100% equities portfolio was meant to deal with the acquisition phase.  Most people seem to wind things down as they approach retirement (which is pretty traditional outside of the FIRE sphere).

[FINate]

Back around 2012 the big fear was runaway inflation. Huge piles of QE money were dumped into the economy and many experts predicted doom. Confession: I shifted some of my portfolio to real estate reasoning this would be reasonably well protected. However overall inflation never really took off. Fortunately for me, and purely dumb luck, much of the money sloshing around found its way into real estate and the stock market so I came out ahead. The lesson: economic prognosticators don't know their arse from their elbow. And as a corollary: since no one knows the future the only thing you can do is put money to work and leave it.

Also back in those days, as someone politically unaffiliated, I ended up talking down multiple conservative friends. They were convinced that Obama [who in my view did a pretty great job with a terrible situation] was going to wreck the economy, so they were super pessimistic and making all sorts of strange decisions. Now I find that I'm talking down my liberal friends. Is there even an Everything Bubble? I can't say for sure. But letting the person in the White House color the way you think about your personal finances doesn't seem like a good plan. I don't yet see the same irrational exuberance that existed in the Tech 1.0 and Housing bubbles...not saying it isn't possible in the near future, but I don't see it yet.

[PDXTabs]

We are either in an everything bubble (likely in my view) or we aren't. But how would I change my behavior? I still want to buy as many equities as possible. I just hope that when it pops I still have a job to buy more equities.

Also, when the everything bubble pops central banks around the world will do their best to re-inflate it, and we will benefit.*

* - even if that isn't good social, economic, or monetary policy.

[Stimpy]

Honest truth.... I am looking for the needle to pop that bubble!   

But as Sol said, unless you feel it's all going to zero then the right path is..... Buy more, and stay the course.

If you feel its going to zero.... Well I think costco ran out the preper mac and cheese, so I guess your screwed as we all would be.   The collapse of civilization as we know it... etc etc.. blah.

Worry sells new papers and ads, and is what FOX, MSNBC, <insert your favorite or hated news network here> want.  If your feeling something your engaged.  And that makes them cash.  (Nothing wrong with them making cash, but you being engaged is a different number).   As has been stated by many a smart person, ignore the noise, and relax.  That bubble, is nothing.

[Wintergreen78]

The everything bubble?  Like, our ever-expanding universe?  Yeah, somewhat concerned, will a large meteor strike earth in my lifetime? is there alien life out there? can Thanos be defeated?  So many questions about our universe.  All kidding aside, no I don't worry about normal financial bubbles, I can neither predict or control them, so I relax and ride out whatever happens.  The higher my savings rate gets the less I tend to worry about market crashes or job loss or whatever worries haunt most people.  Pre-MMM when I was saving sub-10% of my income I had a lot more worries about investing at the wrong time, now that I'm at nearly 50% I don't worry about markets at all.  Weird how that works.

Personally, I spend time every day contemplating the ever-increasing amount of entropy in the universe. All human endeavour is doomed by thermodynamics.

[Villanelle]

I'd say I am pretty much zero percent concerned.  We aren't FIRE yet, but whether we are or not if/when a bubble pops, out plan is flexible in so many ways.  I'd prefer not to flex it, but if I need to, I will. 

[FIRE 20/20]

Not worried at all.  I just FIREd, and because of what I was able to add during my OMY and the crazy run-up we've had recently I'm down to 3.1% WDR.  I didn't plan to get that low, but I committed to staying on at work until this month.  If the bubble really pops and we end up at a CAPE of under 20, then I'll be confident that my higher WDR will be safe because everything will be undervalued and should recover.  If it drops just enough to get me to a 4% WDR then I still should be fine, and valuations will be reasonable.  If it stays high and my WDR stays below or well below 4% then I'm confident that a low WDR will see me through.  Win/win/win. 

[brooklynmoney]

I believe what you are trying to say is . . . https://forum.mrmoneymustache.com/investor-alley/top-is-in/

[Laserjet3051]

kenmoremmm, exactly what are you trying to say here? That the top is in? Who do you think you are, Thorstache?

[kenmoremmm]

i am no thorstache and am humbled by the mention.

if you pay enough attention to the hundreds of random threads on this board, you'll occasionally see 'everything bubble' pop up here and there. many other places too. maybe it's the cool thing to justify bear mentality, but given the unprecedented fed tinkering, it sure seems like things could implode. i know, i know, worse things have happened. but, this is a serious financial market manipulation the likes that haven't been seen before...

[SwordGuy]

We have income sources that include:

Rented Farmland
Rented Homes (different state)
Stocks and Bonds
Social Security

And we have a cash stash.


They aren't correlated and they, on average, can be expected to produce significantly more than we budget to spend and we could cut what we budget to spend by a fair bit if we had to.

I have no idea whether we're in an everything bubble or not.   I've diversified and done the best I could.  After that it's just luck.

[Bloop Bloop]

Seems to me that bubbles are most dangerous when only some things are overvalued. The bubble pops and the people holding the overvalued assets are in bad shape relative to the people who own other stuff that wasn't subject to the bubble. But if literally everything is overvalued, what happens when the bubble pops? We all agree that the price of everything should go down by a similar amount? So what?

The popping of an everything bubble would involve the stock market returning to a historically normal PE ratio around 15, investment grade bonds again yielding a historically normal 6-8%, real estate earning over 1% of its value in monthly rent, and savings accounts, CDs, or treasuries yielding 5-6%.

To reach these historically normal levels, stocks, bonds, and real estate would need to fall 40%ish in market price. The problem is that we can safely assume groceries, rents, transportation, and healthcare would not drop in price with such a scenario.

To quantify my concern, I use an options strategy called a collar to protect against a decline in prices of greater than 7-8% and pay about 2% of my portfolio per year for this protection, except in years like 2018 where my hedges actually earned money.

I would love for the bubble to pop as above. (If there is even a bubble.) Because it would let me RE a lot faster, since I depend on rent and dividends for my FIRE plans (I don't plan on ever drawing principle, so the underlying value of the asset is of less importance to me).

I wouldn't mind a recession at all - lower inflation, buying opportunities, lower prices and economic turbulence are generally good for well-placed investors.

A successful economy - with higher inflation, high asset values and few bargains - is a much harder environment to invest in.

[talltexan]

The problem I have with market timing is that I remember how I felt that last week of December when it seemed like nothing would go up. I was scared. Didn't have the courage to invest anything extra (beyond my auto-pilot retirement savings).

[sol]

I remember how I felt that last week of December when it seemed like nothing would go up.(beyond my auto-pilot retirement savings).

This just seems so weird, right?  2018 was literally a negative year for the stock market, down over 4%, and yet everyone is convinced the market is white hot overvalued?  If you think the market is overvalued when it goes down for a 12 month period, when will you ever think it's undervalued?

What I'm seeing in this thread is lots of perma-bears.  Markets are going up?  It's a bubble, sell quick!  Markets are going down?  The top is in, sell quick! 

Make up your minds, bears.

[Dare2Dream]

Yup, fairly concerned.. but also accepting there's nothing I can do about it.

I do have a significant amount of my wealth in my own version of a "permanent portfolio" with uncorrelated assets; my expectation is that if and when the everything bubble goes tits and paper assets are smashed, the real assets will compensate accordingly.

I am in this camp.  Don't worry about things you cannot control.  And part of that control is having uncorrelated assets, healthy savings and controlled expenses. 

Floating along slightly trailing the market in good times but significantly outperforming during the eventual bumps in the road. 

[Buffaloski Boris]

Concerned is too strong a term. I’m in the perma-sceptic, not perma-bear camp. Am slowly going back to equities on a DCA basis. One of the posters here actually persuaded me of the forehead-slapping folly of being low equities exposure if an important goal is building generational wealth. Over a very long time period I think it’s clear that equities provide the best returns. Period, hard stop. The question is your relevant time period. Mine is just a whole lot longer than I thought.

I do think assets are overpriced and risk returns are underpriced compared to historical norms. “Everything is different this time” until it isn’t. Cash is not a bad place to be right now if you have a relatively short time horizon.

[lowroller4111]

The popping of an everything bubble would involve the stock market returning to a historically normal PE ratio around 15, investment grade bonds again yielding a historically normal 6-8%,

Low rates can last for a VERY long time, look at Japan... 30 years and interest rates near 0.  We are nowhere close to that situation.  My guess is that interest rates will be fluctuating from 0-3 for the forseeable future and assets are priced accordingly.  With the new $2 Trillion infrastructure plan coming onboard now there is no way in hell interest rates are going to 4 or 5%, let alone higher than that.

[waltworks]

The popping of an everything bubble would involve the stock market returning to a historically normal PE ratio around 15

P/E of 15 hasn't happened (with one very brief exception) in about 30 years, though, and we've seen plenty of bubbles pop in that time. Accounting changes and the increase in buybacks/decrease in dividends overall put "normal" P/E somewhere around 20, though you can debate the details and exact number.

Put another way, was 2009 a really, really good time to buy, or just average?

-W

[ysette9]

The problem I have with market timing is that I remember how I felt that last week of December when it seemed like nothing would go up. I was scared. Didn't have the courage to invest anything extra (beyond my auto-pilot retirement savings).

Is that what happened? I was vaguely aware of some rumblings on these forums but otherwise I didn’t really notice and didn’t really care. I just kept plugging my cash into Vanguard each week when it became available.

For someone smarter than me: my impression is that last December/all of 2018 was a blip compare to overall market ups and downs. Is that a fair assessment?

[FIREstache]

I'm not as worried now that I have moved toward a more conservative AA as I near FIRE.  I had been 80% equities until last July.

[maizefolk]

The problem I have with market timing is that I remember how I felt that last week of December when it seemed like nothing would go up. I was scared. Didn't have the courage to invest anything extra (beyond my auto-pilot retirement savings).

+1 to this. A great thing about auto-pilot investments is that you don't have to be worried all the time. Otherwise you spent half your time worrying if the market is too high and you should sell, and the other half worrying if it is low enough now for you to buy.

Although I do wish the Christmas Crash had held out long enough for my December paycheck's retirement contributions to post. Instead the market was back up almost 5% by the time the automatic investments hit my accounts in January.

[harvestbook]

What I love about stocks and bonds at any price is that all you have to do to make money is nothing.

[Bloop Bloop]

My country (Australia) has a housing downturn and I'm hoping it turns into a full-on crash with reduced consumer confidence and deflation/nil inflation to boot. That would be very good for investors trying to get a few properties on the cheap.

[Dare2Dream]

The problem I have with market timing is that I remember how I felt that last week of December when it seemed like nothing would go up. I was scared. Didn't have the courage to invest anything extra (beyond my auto-pilot retirement savings).

Is that what happened? I was vaguely aware of some rumblings on these forums but otherwise I didn’t really notice and didn’t really care. I just kept plugging my cash into Vanguard each week when it became available.

For someone smarter than me: my impression is that last December/all of 2018 was a blip compare to overall market ups and downs. Is that a fair assessment?

Yes, within the big picture the last correction was not that bad and rebounded very fast.  A lot of people panicked then, imagine what happens if/when the market falls 30-40% and smart people question whether it will ever go up again.  That's when you find out what you are made of.  Not during the more common 10% blip.

[FIREstache]

The problem I have with market timing is that I remember how I felt that last week of December when it seemed like nothing would go up. I was scared. Didn't have the courage to invest anything extra (beyond my auto-pilot retirement savings).

Is that what happened? I was vaguely aware of some rumblings on these forums but otherwise I didn’t really notice and didn’t really care. I just kept plugging my cash into Vanguard each week when it became available.

For someone smarter than me: my impression is that last December/all of 2018 was a blip compare to overall market ups and downs. Is that a fair assessment?

Yes, within the big picture the last correction was not that bad and rebounded very fast.  A lot of people panicked then, imagine what happens if/when the market falls 30-40% and smart people question whether it will ever go up again.  That's when you find out what you are made of.  Not during the more common 10% blip.

You've had a correction with a 10% drop, a bear market at 20%.   Since the S&P 500 dropped 20% from record highs by Dec 24, that's actually at the edge of the "worst" correction or mildest bear market.  Small caps were down 27% and still haven't fully recovered.  A fourth of S&P 500 stocks are still in bear market territory.

You should have your AA set appropriately for your risk tolerance.

[habanero]

I made my first entry in the equities market at the - back then - close to worst time. As a student I bough some of a domestic index fund in early 1998. Six moths later it was down 40%. To my current standard it was small potatoes, but I've kept it until recently as a remainder of how things actually work. This investment has survived the 1997/98 asian crash, the .doc-bubble and the 2008-2009 financial crisis. I sold it the other day to clean up things a bit, and it was up approx 500% since I bought it - even with higher-than-neccessary management fees. Yes, if I had bought 6 months to a year later I would be up by a lot more. But looking back that massive crash looks like a small blip in the grander scheme of things.

There is of course always the possibility that the coming weeks, months or years might be horrible for equities. But you never know. Stay calm, stick to the plan and be happy. After all, its only money. In the long run you are likely to be just fine. 

[John Galt incarnate!]

What I love about stocks and bonds at any price is that all you have to do to make money is nothing.

During a period of extraordinary  stock-market volatility John Bogle was a guest on a  TV show that covers finance/investing/money.

When Bogle was asked what investors should do the hoary sage of investing said "do nothing."

[Indexer]

How could there be a bubble in everything? There is only so much money to compete for asset classes and enough money to create a bubble in everything would create inflation... which means that anything that acts as a hedge against inflation wouldn't be in a bubble.


No, I'm not concerned.

That said, higher valuations in stocks and lower yields in bonds than historical averages does tell me that I shouldn't be surprised if we see lower than average returns over the next 5-10 years. Instead of 100% stocks earning 10% and a 60/40 earning 8.5%, I use 7% and 5% in my FIRE calculations.

[ChpBstrd]

How could there be a bubble in everything? There is only so much money to compete for asset classes and enough money to create a bubble in everything would create inflation... which means that anything that acts as a hedge against inflation wouldn't be in a bubble.

Actually, there has been a rapid increase in the amount of money competing in investments:
https://fred.stlouisfed.org/series/M2

However, inflation is not the amount of money in existence, it is an increase in the price of a basket of goods. The modern understanding of how inflation works (i.e. not monetarism) is that it is related to the velocity of money - i.e. how frequently a typical dollar changes hands.

Put all this together and we currently see an increased trajectory of money creation accompanied by a slow velocity of money and low inflation (a combo thought to be impossible in the monetarist paradigm), which means the money being created is flowing into accounts and sitting. It's going into investments instead of trade.

A bubble in everything could also be understood as the price of investments being too high as measured in dollars. The inverse is that the price of dollars as measured in investments is too low. An everything bubble would therefore be a situation where dollars were undervalued and investments were overvalued.

Everything bubbles have happened before. In 1929, for example, the prices of stocks, bonds, and real estate all fell at once as people scrambled for dollars. Meanwhile, dollars increased in value in the sense that they bought more goods (deflation).

Bonds: https://fred.stlouisfed.org/series/BAA
Stocks: https://www.macrotrends.net/2324/sp-500-historical-chart-data
Real Estate: http://people.hbs.edu/tnicholas/anna_tom.pdf
Deflation: https://www.thebalance.com/u-s-inflation-rate-history-by-year-and-forecast-3306093