Author Topic: Stock market expensive now - alternatives?  (Read 7133 times)

juggleandhope

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Stock market expensive now - alternatives?
« on: October 27, 2013, 08:02:21 PM »
hi - was convinced of the benefit of buying some vanguard indexes - but since the S&P is at a record high and various price/earning ratios also seem high (like http://www.gurufocus.com/shiller-PE.php) it seemed like now's not the time to put most of my life savings $30k into stocks.

suggestions?  live in nyc so real estate not easy. 

iamlindoro

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Re: Stock market expensive now - alternatives?
« Reply #1 on: October 27, 2013, 08:09:38 PM »
My suggestion is to not try to time the market.  You haven't said so, but I'll assume you are planning for the long haul (lifetime investment versus the next year or two/trying to treat the stock market like a savings account).  If so, then market fluctuations mean nothing to you, and trying to time the market is nuts because we're looking at time horizons in tens of years rather than months.  Invest in an index fund, add to it regularly, and in a dip down, cram even more in if you can, stocks are on sale.  We are *always* headed towards a new all time high.

Khan

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Re: Stock market expensive now - alternatives?
« Reply #2 on: October 27, 2013, 08:30:27 PM »
My suggestion is to not try to time the market.  You haven't said so, but I'll assume you are planning for the long haul (lifetime investment versus the next year or two/trying to treat the stock market like a savings account).  If so, then market fluctuations mean nothing to you, and trying to time the market is nuts because we're looking at time horizons in tens of years rather than months.  Invest in an index fund, add to it regularly, and in a dip down, cram even more in if you can, stocks are on sale.  We are *always* headed towards a new all time high.
This. If you want, you could enter into the market slowly, maybe at a rate of ~1000$ of savings a month, but timing the market just isn't something that works.

dfrei

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Re: Stock market expensive now - alternatives?
« Reply #3 on: October 27, 2013, 08:39:30 PM »
Have you tried Lending Club? You probably don't want to put everything there, but it sounds like you have around $30k to invest at the moment. You could put at least 10% of that in Lending Club notes and at least start to get some returns on your money while you figure out what to do with the rest of it.

dragoncar

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Re: Stock market expensive now - alternatives?
« Reply #4 on: October 27, 2013, 10:09:09 PM »
I wouldn't use nominal value to determine if stocks are expensive.  On an inflation-adjusted basis, we still aren't there yet.  One alternative is the shiller PE (http://www.multpl.com/shiller-pe/), which suggests stocks are still fairly expensive, but nowhere near historical highs. 

Also, do you have any data to suggest that buying at all-time highs does not pay off?  What do you calculate the expected return to be?

Will

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Re: Stock market expensive now - alternatives?
« Reply #5 on: October 27, 2013, 10:36:52 PM »
hi - was convinced of the benefit of buying some vanguard indexes - but since the S&P is at a record high and various price/earning ratios also seem high (like http://www.gurufocus.com/shiller-PE.php) it seemed like now's not the time to put most of my life savings $30k into stocks.

suggestions?  live in nyc so real estate not easy.

If I ad a dollar for every time I heard someone say they didn't want to invest because of something being at a "record high" then I would have a record high number of dollars.

pom

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Re: Stock market expensive now - alternatives?
« Reply #6 on: October 28, 2013, 04:52:56 AM »

If I ad a dollar for every time I heard someone say they didn't want to invest because of something being at a "record high" then I would have a record high number of dollars.

Love it: +1

Roland of Gilead

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Re: Stock market expensive now - alternatives?
« Reply #7 on: October 28, 2013, 07:48:32 AM »
Doesn't seem like a record high to me when it was above this level 5 years ago adjusted for inflation.

Come back in a year when we are 20% higher, then you might have some reason.

Cecil

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Re: Stock market expensive now - alternatives?
« Reply #8 on: October 28, 2013, 07:54:41 AM »
A quick analysis I ran indicated that there's no difference in 5-year expected return whether you invest when the stock market is at a record high or not.

http://www.mrmoneymustache.com/forum/investor-alley/it's-better-to-invest-when-the-market-is-at-a-record-high/

Frankies Girl

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Re: Stock market expensive now - alternatives?
« Reply #9 on: October 28, 2013, 08:40:26 AM »
Sure, it's hit some record highs, but do you think it is never going to go any higher ever again?

It may go down a bit, and it may do that a bunch more times before the year is out, but if you are in it for the long haul, the market ALWAYS goes up. No one can predict when the ups and downs will happen, but over time, it will continue going upwards.


http://en.wikipedia.org/wiki/File:S%26P500_%281950-12%29.jpg

http://stockcharts.com/freecharts/historical/djia1900.html

tooqk4u22

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Re: Stock market expensive now - alternatives?
« Reply #10 on: October 28, 2013, 09:19:00 AM »
hi - was convinced of the benefit of buying some vanguard indexes - but since the S&P is at a record high and various price/earning ratios also seem high (like http://www.gurufocus.com/shiller-PE.php) it seemed like now's not the time to put most of my life savings $30k into stocks.

suggestions?  live in nyc so real estate not easy. 

Record highs in absolute dollars are irrelavent - every new high is a record high at some point.  Valuations matter though regardless of whether you think you can time the market.


I wouldn't use nominal value to determine if stocks are expensive.  On an inflation-adjusted basis, we still aren't there yet.  One alternative is the shiller PE (http://www.multpl.com/shiller-pe/), which suggests stocks are still fairly expensive, but nowhere near historical highs. 

Also, do you have any data to suggest that buying at all-time highs does not pay off?  What do you calculate the expected return to be?

While the Shiller PE isn't near historical highs your statement is a little misleading/misinformed as there really are only three periods in the history where the Shiller PE was higher than now - right before the great depression and before the dot com crash and just slightly above where we are prior to the financial crisis. 

So there may be room to run and push the markets but history is not on the side of good returns from this point. 

On P/E basis at 19+ that equates to 5.3% return - not the greatest but not bad when inflation and the 10 year US treasury (risk free rate) is factored in - those are the drivers of the high PE currently, historically high PEs are expectations of high future growth (we are definitely not in that zone right now).  Again, ignoring market timing argument, the real question is do you expect inflation and interest rates to stay ridiculously low for the foreseeable future (5-10 years). If so then the markets aren't over priced.


Will

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Re: Stock market expensive now - alternatives?
« Reply #11 on: October 28, 2013, 09:33:29 AM »
Conversely, when there is a huge drop, will you freak out that it dropped so much and stay out or would you jump in recognizing that the market is "on sale"?  Or maybe you would wait for it to drop more, because if it dropped 10% today, what is to say it won't drop 10% more tomorrow?  It is always going to be a guessing game when you are trying to time the market.

JohnGalt

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Re: Stock market expensive now - alternatives?
« Reply #12 on: October 28, 2013, 09:52:26 AM »
To me, this question always comes down to "is it even worth your time to worry about it?"

From an old thread...


Okay -- it's more than a few hours a week.  I was up til 2 AM last night studying my charts; I was up a 7 (before work) scanning headlines, preparing my game plan, attempting to locate opportunities; it's really a second job, truth be told. 

And yes, the greatest traders in the world know these zones/trends/patterns.  How quickly the opportunity is removed varies, but I've found the most glorious trade set ups allow you plenty of time to get on board.

This brings back up the question... is it worth it?  Which, of course, is primarily dependent upon three variables (as I see it).

Total amount you're trading with (using these methods):  P
Expected increase in yield over more passive approaches:  r
Increase in time spent analyzing/trading over more passive approaches:  t

Your reward / time function then becomes   P*r/t

Using that and assuming 1,000 additional hours per year (part time job equivalent) for time here are the hourly rates recieved for every 1% increase in performance for different levels of P. 

$100,000 = $1/hour/1%
$250,000 = $2.5/hour/1%
$500,000 = $5/hour/1%
$1,000,000 = $10/hour/1%

Obviously if you spend less time these numbers change but even at 500 hours per year a 2% gain and a $500K portfolio, I'd be at $20/hr.
The opportunity cost will be different for everyone, but even that ( in my opinion top end) situation would probably not be worth it to me personally.  Especially given that the % gain is not guaranteed.  I can pick up part time consulting gigs for much better hourly rates than what I would gain spending a ton of time trying to gain a % or two on my current portfolio (for sure) and probably my FI portfolio as well.

I guess if you enjoy the analysis - maybe that should be factored in as a non monetary benefit too that would make it worth it.  I happen to very much not enjoy that side of things - even though (or maybe because?) I do statistics/modeling/forecasting for a living.

So... with $30,000, you really need another passive investment alternative to have any shot at the hourly rate being worth it.  I haven't been able to find anything else passive that returns anywhere near the hourly rate of just investing in the stock market regularly without spending a lot of time worrying about it.  Spend the time up front to come up with your goal asset allocation, reevaluate once or twice a year and just let it roll the rest of the time. 

You might feel better if you split the $30,000 up over the next 6 months and just invested $5,000 at any given time.  But the decision needs to be where you want your money in the long term.  If it's in stocks, don't bother worry about timing or what alternatives might be out there.  Get it on auto-pilot and let it go until you have enough assets for it to be worth your time to manage it.
« Last Edit: October 28, 2013, 10:06:01 AM by JohnGalt »

beltim

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Re: Stock market expensive now - alternatives?
« Reply #13 on: October 28, 2013, 11:44:14 AM »
hi - was convinced of the benefit of buying some vanguard indexes - but since the S&P is at a record high and various price/earning ratios also seem high (like http://www.gurufocus.com/shiller-PE.php) it seemed like now's not the time to put most of my life savings $30k into stocks.

suggestions?  live in nyc so real estate not easy. 

Record highs in absolute dollars are irrelavent - every new high is a record high at some point.  Valuations matter though regardless of whether you think you can time the market.


I wouldn't use nominal value to determine if stocks are expensive.  On an inflation-adjusted basis, we still aren't there yet.  One alternative is the shiller PE (http://www.multpl.com/shiller-pe/), which suggests stocks are still fairly expensive, but nowhere near historical highs. 

Also, do you have any data to suggest that buying at all-time highs does not pay off?  What do you calculate the expected return to be?

While the Shiller PE isn't near historical highs your statement is a little misleading/misinformed as there really are only three periods in the history where the Shiller PE was higher than now - right before the great depression and before the dot com crash and just slightly above where we are prior to the financial crisis. 

So there may be room to run and push the markets but history is not on the side of good returns from this point. 

On P/E basis at 19+ that equates to 5.3% return - not the greatest but not bad when inflation and the 10 year US treasury (risk free rate) is factored in - those are the drivers of the high PE currently, historically high PEs are expectations of high future growth (we are definitely not in that zone right now).  Again, ignoring market timing argument, the real question is do you expect inflation and interest rates to stay ridiculously low for the foreseeable future (5-10 years). If so then the markets aren't over priced.

Everyone needs to read tooqk4u22's comment here.  And then re-read it.  And then look up the Shiller data to understand how you get from a P/E10 to a 5.3% return.  One place is here: http://greenbackd.com/2013/04/04/73-year-chart-comparing-estimated-shiller-pe-returns-to-actual-returns/

I don't think this is a reason to not invest in the market at all right now, but I certainly think one can use it to adjust your short-term asset allocation, or pace at which you invest in the market.  There will be a difference whether juggleandhope has $30k now and is saving another $2000 a month, or whether juggleandhope is only saving $100 a month.

dragoncar

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Re: Stock market expensive now - alternatives?
« Reply #14 on: October 28, 2013, 01:47:03 PM »
hi - was convinced of the benefit of buying some vanguard indexes - but since the S&P is at a record high and various price/earning ratios also seem high (like http://www.gurufocus.com/shiller-PE.php) it seemed like now's not the time to put most of my life savings $30k into stocks.

suggestions?  live in nyc so real estate not easy. 

Record highs in absolute dollars are irrelavent - every new high is a record high at some point.  Valuations matter though regardless of whether you think you can time the market.


I wouldn't use nominal value to determine if stocks are expensive.  On an inflation-adjusted basis, we still aren't there yet.  One alternative is the shiller PE (http://www.multpl.com/shiller-pe/), which suggests stocks are still fairly expensive, but nowhere near historical highs. 

Also, do you have any data to suggest that buying at all-time highs does not pay off?  What do you calculate the expected return to be?

While the Shiller PE isn't near historical highs your statement is a little misleading/misinformed as there really are only three periods in the history where the Shiller PE was higher than now - right before the great depression and before the dot com crash and just slightly above where we are prior to the financial crisis. 

So there may be room to run and push the markets but history is not on the side of good returns from this point. 

On P/E basis at 19+ that equates to 5.3% return - not the greatest but not bad when inflation and the 10 year US treasury (risk free rate) is factored in - those are the drivers of the high PE currently, historically high PEs are expectations of high future growth (we are definitely not in that zone right now).  Again, ignoring market timing argument, the real question is do you expect inflation and interest rates to stay ridiculously low for the foreseeable future (5-10 years). If so then the markets aren't over priced.

Not sure how my post was misleading of misinformed.  The pe is not great, just like 5.3% is not great, but where do you expect to get a better return (or a better risk adjusted return)

tooqk4u22

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Re: Stock market expensive now - alternatives?
« Reply #15 on: October 28, 2013, 02:10:11 PM »
I wouldn't use nominal value to determine if stocks are expensive.  On an inflation-adjusted basis, we still aren't there yet.  One alternative is the shiller PE (http://www.multpl.com/shiller-pe/), which suggests stocks are still fairly expensive, but nowhere near historical highs. 

While the Shiller PE isn't near historical highs your statement is a little misleading/misinformed as there really are only three periods in the history where the Shiller PE was higher than now - right before the great depression and before the dot com crash and just slightly above where we are prior to the financial crisis. 

So there may be room to run and push the markets but history is not on the side of good returns from this point. 

On P/E basis at 19+ that equates to 5.3% return - not the greatest but not bad when inflation and the 10 year US treasury (risk free rate) is factored in - those are the drivers of the high PE currently, historically high PEs are expectations of high future growth (we are definitely not in that zone right now).  Again, ignoring market timing argument, the real question is do you expect inflation and interest rates to stay ridiculously low for the foreseeable future (5-10 years). If so then the markets aren't over priced.

Not sure how my post was misleading of misinformed.  The pe is not great, just like 5.3% is not great, but where do you expect to get a better return (or a better risk adjusted return)

It was the part of your comment emphasized above that drew me  - the implication is that your still safe because the top is so far away based on other highs - misleading.  It wouldn't be that misleading if it the PE regularly hits highs much greater than they are (every 3-7 year like a typical economic cycle) but that is not the case - only three times has it been higher.  The "misinformed comment might have been too much, but maybe not if you didn't really look at the data (i.e. you just looked at 1999 to base your comment on).

As for your argument about where can you get a better risk adjusted return - I don't know, but I could easily argue on the other hand that the market is not currently offering an appropriate return for the risk - the biggest problem is that the fed QE is driving it so there is nowhere to hide - and you saw some of this just with the hint of tapering, stocks and bonds dropped. Therein lies the real bubble....when the fed as to run for the hills it will be bad.....and if they don't have to run for the hills it will be bad because then we have become Japan. 

So it is best to keep making your regular investments based on your AA - but if someone handed me a large sum of money I would hard pressed to put it all in the market.