Are the Markets Too High to Invest?

Linton

kidmugsy wrote: »

For the purpose under discussion they are: the question was how long it took to break even after the market peak in '99. To give an answer that ignored inflation would be preposterous.


I go further: the key argument for investing in equities is the hope that they will protect the investor from inflation. Any plot of returns which suppresses the effect of inflation is therefore NBG.

The purpose under discussion is to compare investing at a particular time vs delaying investing because prices are thought to be too high. Unless delaying investing enables the use of an inflation matching savings option, were there to be one, inflation is irrelevent. What may be relevent for comparison purposes is to use the savings options available at the time, perhaps adjusted for tax.

You cant sensibly claim that investing now is a bad idea because it may not match inflation in the short/medium term unless you state what the alternative is.

Credit-Crunched

Sally57 wrote: »

Most of the geographical regions (Japan, Asia Pacific, EM & Europe) are very high at the moment so are these markets far too high to invest?

'Time in the Market is a regular comment but if you had cash to invest now don't you think it's worth holding back at current prices?'

Yes, No, Maybe.

Ray_Singh-Blue

Credit-Crunched wrote: »

Yes, No, Maybe.

She asked two questions and you gave her three answers

Marine_life

I think the issues today are quite different from those historically.

A long period of low interest rates has, in my view, seen the level reset i.e. we CANNOT return to higher rates very quickly as the economic damage would be huge.

While interest rates remain low therefore equities will continue to be an attractive asset.

baj25

My first foray into investing was in 99, the first time I had spare cash. I sat it out for years (about 6) before it came back to what I put in. I've equally put money in at times of doom and gloom and it has done well. That is pound cost averaging over nearly 2 decades I guess? I have learned it is very hard to know 'the right time', sometimes I'd have waited years to invest, but overall I've done better than leaving it on deposit which is my simplistic benchmark.

bigadaj

Marine_life wrote: »

I think the issues today are quite different from those historically.

A long period of low interest rates has, in my view, seen the level reset i.e. we CANNOT return to higher rates very quickly as the economic damage would be huge.

While interest rates remain low therefore equities will continue to be an attractive asset.

Or more pertinently a less unattractive asset maybe.

Ray_Singh-Blue

Some may say we CANNOT return to higher interest rates very quickly as the economic damage would be huge. A year ago, I would have said America CANNOT elect Donald Trump as president, and Britain CANNOT leave the EU, for the same reasons. But I was wrong, and as far as I can see the economic damage has not yet occurred.

I'm not sure that a rise in interest rates will be bad for equities. Interest rates rises will possibly come on the tail of sharp inflation, which could be neutral or positive for the value of many equities.

Historically some periods of high interest rates were also periods of stock market rises - for example 1984 to 1986 when interest rates rose to 14%, and the FTSE100 doubled from 1100 to 2200.

(I think an interest rate rise will clearly, mathematically, be bad for the value of existing bonds though.)

AnotherJoe

Ray_Singh-Blue wrote: »

Some may say we CANNOT return to higher interest rates very quickly as the economic damage would be huge. A year ago, I would have said America CANNOT elect Donald Trump as president, and Britain CANNOT leave the EU, for the same reasons. But I was wrong, and as far as I can see the economic damage has not yet occurred.

I'm not sure that a rise in interest rates will be bad for equities. Interest rates rises will possibly come on the tail of sharp inflation, which could be neutral or positive for the value of many equities.

Historically some periods of high interest rates were also periods of stock market rises - for example 1984 to 1986 when interest rates rose to 14%, and the FTSE100 doubled from 1100 to 2200.

(I think an interest rate rise will clearly, mathematically, be bad for the value of existing bonds though.)

Not a good analogy Ray, because the two events you mention were not implemented by people who took account of the economic consequences. Raising interest rates quickly would be done by a handful of people or even just one, amd what would their justification be ?

Ray_Singh-Blue

Fair enough, that was a bit garbled

What I mean, interest rates could rise quickly. And if they do, it may not mean certain economic doom. And I don't agree with the "therefore" in ML's comment either, it implies a certain logic and order to stock market valuation and disregards the "animal spirit"

Anyway it is all kind of tangential to to OP's questions

coastline

Ray_Singh-Blue wrote: »

Fair enough, that was a bit garbled

What I mean, interest rates could rise quickly. And if they do, it may not mean certain economic doom. And I don't agree with the "therefore" in ML's comment either, it implies a certain logic and order to stock market valuation and disregards the "animal spirit"

Anyway it is all kind of tangential to to OP's questions

If you set this chart to 10y or MAX the UK annual GDP growth rate goes back to 1956.The average growth rate is 2.45% and there's been some very high rates to boost the average in earlier periods.
Todays rate around 2% really isn't that bad yet we still haven't got any base rate increases and I would guess we won't until world growth picks up further.Yes I agree higher base rates wouldn't be bad for equities if earnings and growth were picking up nicely.

http://www.tradingeconomics.com/united-kingdom/gdp-growth-annual

The link between inflation and base rates was broken in 2008 and has yet to be restored.
We had inflation of 4% around 2011 yet base rates were held and its forecast to be similar over the next few years..

https://qph.ec.quoracdn.net/main-qimg-ffbaa40be973911c643022c8cbebb32e

http://i.dailymail.co.uk/i/pix/2011/07/07/article-2012193-0CE7882400000578-469_468x350.jpg