Investors Concerned With Traditional Investments’ Performance

An increasing number of investors are growing concerned about the performance of the traditional investments in their portfolio; in particular, their stocks and bonds. Their foremost concerns are that stocks are overvalued and bonds are risky These are two very unappealing scenarios for cautious investors.

Stock Market

In recent years, countless investing surveys have been conducted. Of the people who responded, nearly half believed that the stock market is overvalued. According to the analysts, the current market is the second longest Bull Market of all time. Historically, the S&P 500’s mean P/E ratio is approximately 15. At the moment, it is in the mid-twenties.

Some financial advisers are of the belief that the markets are overdue for a pullback. With that being said, many believe it will emerge as a correction within the existing Bull market, and not surprise the world with another global financial crisis. Many are saying that they expect to see a 5% to 10% pullback in the stock market.

Bonds

Interest rates and bond prices enjoy an inverse relationship. As interest rates rise, the price of bonds is likely to fall. Conversely, when interest rates fall, the price of bonds trading in the marketplace generally rises. Also, if the cost of living and inflation increase dramatically, and at a faster rate than income investment, investors will see their purchasing power erode and may actually see a negative rate of return.

Aside from interest rate risk, which is the most widely-known of risks in the bond market, reinvestment, default, and liquidity risk should also be closely considered when choosing whether or not to pursue a bond investment.

Alternatives

In recent years, alternative investments have found an important place in a well-balanced investment portfolio. The investment community has taken the opportunity to invest in containers and other hard assets, that emerged relatively unscathed from the last financial crisis. In the absence of viable options from traditional investments, investment-seekers are finding alternative investments to be much more appealing.

Money Managers’ Reviews Can Misinform And Misguide Investors

For most investment-seekers, when choosing investments, risk versus return is the primary concern. Every investor knows what their risk tolerance is. The challenge is identifying investments that satisfy return expectations, while also meeting their threshold for risk. It is a delicate, precarious balance.

In an effort to find investments that meet their criteria for investing, investors will sift through investment testimonials, interviews, and books, to uncover hidden gems of knowledge. These sources of information (often) provide insightful, first-hand accounts that help investment-seekers choose their best options. The only danger to this approach is that some fund and money managers may share bias reviews. These can misinform and misguide the investment community. Without a doubt, this adds to the risks of investing.

Sadly, sometimes financial advisers will try to influence the decision of investors by using defamation, libel, and slander, to make other investments look less appealing than their own. I came across a post earlier from Alexis Assadi that introduced a conspiracy theory – without any substantive proof, and in doing so, he used his influence to intentionally create a sense of doubt in investment-seekers. This is especially troublesome if the adviser has not invested in the opportunity him/herself.

The whole point of penning a review is to share one’s individual experience; it is not a place for fiction or rhetoric. The author’s intention should be to help others make better, more educated decisions, and not intended to be harmful or misleading in any way. If it is not an honest perspective, then in my mind the review is of little to no value whatsoever.

Investors should look for reviews and testimonials from investment advisers who have first-hand experience with the offer they are reviewing. Otherwise, fund and money managers are sharing their personal opinion as fact, and are misleading the investment community. This can create confusion for investors who are trying to balance their risk and reward.

Stock Valuations Are Highly Subjective And Overvalued

History has demonstrated that stock valuations are highly subjective, and that markets can easily become significantly overvalued before a long-running Bull Market ends. This is cause for concern, as today’s stock markets continue to spring higher and higher.

Naturally, the market’s high valuation is a concern, but it’s my view that it’s been overvalued for about three years.  Over that time period, the S&P 500 has gone up 30 percent. – David Ott, Partner, Acropolis Investment Management

This market is the second longest Bull Market of all time. Historically, the S&P 500’s mean P/E ratio is approximately 15. At the moment, it is in the mid-20’s. The last two times the S&P 500’s P/E ratio hit the mid to upper 20’s was in the late 1920’s and the late 1990’s. Investors who have done their investment research know very well what followed shortly after that.

This does not necessarily mean that the market will crash tomorrow. The past has also shown us that market valuations can continue to stretch for quite a period of time. Although at this point some money managers and advisers believe the markets are overdue for a pullback, many continue to believe it will emerge as a correction within the existing Bull market and not a crash. Many expect to see a 5% to 10% pullback in the stock market based on the current high yield spread.

Generally speaking, U.S. stocks are overvalued and International stocks are undervalued. With that being said, a globally diversified investment portfolio that includes 20% to 30% international assets will outperform the S&P 500 over the next three to five years. In fact, it is expected that a well-balanced portfolio with safe, income-generating investments will deliver steady returns over the next five to seven years.