Your Financial Future: Let elected leaders know how you feel
Last week we discussed price earnings ratios in the stock market and how many of today蘑菇视频 tech giants are priced at huge multiples.
Remember, those ratios reflect how many times earnings must be achieved to equal the price the stock is selling for.
We are hearing every day from Washington, D.C., why we need to give away trillions of dollars because the economy is in such bad shape. We鈥檙e also hearing that evictions are about to become common place and many people are losing their homes. Yet, since the Russell 2000 hit it low on March 18, 2020 the index is up 130%.
How can the stock market and the economy be so disconnected?
There are probably several reasons for this. First, investors are so afraid that they will miss the next upswing, they are not facing reality. Some investors think things have to keep climbing as the economy improves. This growth is most likely already priced into valuations.
Warren Buffet once said that he believes the best single measure of where valuations stand at any given moment is the ratio of total weighted market cap value to GDP. GDP is the gross domestic product of all things we make and services. Right before the crash in quarter 1 of 2000 it was 1.37. A few years later right before the last market crash it was 1.05 in the 2nd quarter of 2007. In the last quarter of 2020 it was 1.72. This is dangerous.
Probably the second reason for this is that the economy might not be as bad as we are hearing from Washington. There are some segments of the economy that are hurting very badly. Restaurants, entertainment, hotels, travel and many small businesses have been struggling. They need help. The unemployment in these segments is very bad. The help should only go to those who lost their jobs to the pandemic.
However, the rest of the economy is doing much better.
Many people have higher savings rates than before the crisis because they did not go on vacations last year, eat out as much or attend entertainment events. Many worked from home, saving work expenses. Home improvement stores have been booming and raising prices because of the demand. Everyone likes free money. The question is: Is it really free?
The national debt is exploding. Visit www.usdebtclock.org. It will cost our children and grandchildren decades of work to make a dent in it.
What about all of the students that followed the rules and paid back their students loans as agreed? Should they be penalized by allowing others to have their student debt wiped away? Is that fair? What about people who did not attend school, should they have to pay for those who did? Many people that I talk to don鈥檛 think this should happen.
Both the stock market and huge budget deficits have a big potential to ruin retirement for many hard working seniors. We have some control over one of these areas by how we allocate our investment portfolio. While there is never a good time to lose money in the stock market, there is a worst time. That is right before or early in retirement. Then, sequence of risk can wipe out a lifetime of savings. You cannot ignore or wish away this possibility.
The exploding government debt is a situation we can only address by letting our elected officials know how we feel. When running for office, they like to tell us how independent they are from leadership if it does not address their constituents concerns. Maybe this is time to let them know how you feel.
Both the high market valuation and huge deficit are bubbles that could create the perfect storm to ruin retirement. Can we wait for them to burst?
Your Financial Future is written by certified financial planner Gary W. Boatman, MBA and CFP, who also wrote the book, 鈥淵our Financial Compass: Safe Passage Through The Turbulent Waters of Taxes, Income Planning and Market Volatility.鈥� If there is an area that you would like to see discussed in the column, send your suggestions to gary@BoatmanWealthManagement.com.