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Should Fear Of An Asset Bubble Change The Way You Save And Invest?

· · 47 Comments

By Craig Erwin

Jeremy Grantham, Chief Investment Strategist at Grantham, Mayo and van Otterloo manages well over $100 billion. He says the stock market is currently experiencing an asset bubble. An asset bubble exists when people are paying far more for an asset (e.g., stocks, bonds, real estate) than can be justified based on fundamentals. Grantham predicts that within weeks or months the bubble will burst. He may be right or wrong; only time will tell. He is not alone in claiming that there is an asset bubble in the stock market. Others have issued similar warnings.

What should you do about asset bubbles? Nothing, at least not if you are dollar-cost averaging. Dollar-cost averaging requires you to save and invest regularly like clockwork. The average cost of the stocks you buy is reasonable if you buy every week or month. Sometimes you will pay too much, but other times you will get a bargain.

So, you should ignore talk of asset bubbles and continue to save and invest money regularly and automatically. No one is able to say with certainty that a bubble exists or that its demise is imminent until after it bursts. If you sold all of your stocks and moved the cash to a safe place every time someone warned of a bubble, you would be mighty busy. And how would you decide which expert is right and when to act on their advice. Someone will always be issuing warnings and there is no way to discern which warnings must be heeded and when.

The best approach, then, is not to worry about asset bubbles, the news, or expert predictions. Simply save and invest money regularly and automatically all the time, whether you or the experts are worried or not. If you just keep saving and investing week in and week out, in the long run you will do very well; much better than most experts who try to time the market, investing only when prices appear reasonable. Even though you will end up paying way too much for stocks right before a bubble pops, you will get great bargains after a bubble pops. On average, though, you will pay a fair price.

So, ignore the news and the experts’ prognostications about impending bubbles and extreme valuations. Just keep saving and investing no matter what. In the long run, your consistency will make the difference. The single biggest factor determining how much wealth you accumulate is how much you save. If you only invest when you think it’s safe to invest or when you think you’re getting bargains, you will invest much less than if you invest every week, all the time, no matter what.

So, just keep saving and investing, come what may. You will outperform most of the geniuses who try to time the market and invest only when they believe the market offers bargains. It’s much like washing your hair. Save, invest, and repeat, over and over, forever. Don’t wait another minute – go get started saving and investing. Now.

https://womenretire.com/the-best-way-for-most-of-us-to-accumulate-wealth-dollar-cost-averaging/

https://womenretire.com/dont-be-afraid-to-invest-when-markets-are-at-record-highs/

https://womenretire.com/its-always-the-best-and-worst-of-times/

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  46. Thanks to your sage advice, Mr. Erwin, I ended years of single-digit annual returns by investing heavily in the stock market late last year. Now, only five months later, my annual return is 26%! Prior to this, my annual returns were below the 7% – 8% historical return of the S&P 500. I was way too conservative with my investment choices because I was afraid of the stock market bubble for years. I should have invested in the stock market regularly and automatically (dollar cost averaging). Had I done that, I would’ve had much more money saved, but it’s never too late to start investing the right way!

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