Nov 06 • 3 min read
Too Expensive or Too Risky?
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Think back to the last time everything about the stock market felt comfortable. Prices seemed reasonable, the economy looked steady, and risks felt manageable. If you can't remember a time like that, you're in good company. 😊 There's almost always a convincing reason to be cautious. And when your retirement savings are on the line, those concerns can make waiting for a better opportunity feel like the responsible thing to do. But there's a problem with that approach, and it starts with how we interpret what's happening in the market. In today's email:
As always, I'll wrap up with a few of the best retirement and investing articles I read in the past week. *** Before we dive in, did you catch this week's podcast? 👇 Why Caution Always Seems WarrantedWhen markets rise, concerns turn to valuations. Words like "overpriced," "stretched," and "bubble" dominate the conversation. When markets fall, the focus shifts to risk, with headlines warning of recessions, geopolitical tensions, and the possibility that "this time is different." Different concerns, but the same underlying message: The market seems headed for trouble, so caution is warranted. And that's where even thoughtful investors can fall into the trap of trying to time the market (though most would never describe it that way). They're simply trying to be prudent by investing when things look attractive and stepping aside when things look concerning. The problem is that markets rarely offer that kind of clarity. The Cost of WaitingSome of the most uncomfortable periods in market history turned out to be extraordinary buying opportunities. But waiting for those opportunities can be costly. Nick Maggiulli once shared an example of an investor who believed stocks were overpriced in early 2017 and decided to wait for a crash. It finally came in March 2020, when the S&P 500 plunged roughly 34% in a matter of weeks. Yet even if that investor had bought at the exact bottom on March 23, they still would have paid 7% more than in early 2017. 🤯 Cullen Roche tested a similar strategy going back to 1901: owning stocks when undervalued and switching to 10-year Treasury bonds when overvalued. By October 2026, that approach had fallen ~70% behind simply buying and holding stocks for the long run. Even all-time highs haven't been a reliable reason to stay on the sidelines. As I shared in episode 263, research cited by Peter Mallouk examined S&P 500 returns from September 1989 through November 2025. During that period, the average 5-year return following an all-time high was 82%, compared with 74% following all other days. Where Valuations Can HelpValuations aren't useless, though. Looking back 140 years, Cullen's study found that buying stocks when valuations were in their most expensive 20% resulted in a loss over the following decade roughly 1/4 of the time. At the cheapest valuations, none of those 10-year periods ended in a loss. As he put it: "A high valuation is really just a high expectation." In other words, when investors pay high prices, they're counting on strong future earnings growth. That leaves less room for disappointment. For retirees, high valuations don't mean a crash is coming, but they can justify more conservative return assumptions and a closer look at your starting withdrawal rate. They also reinforce the importance of flexibility. Keeping 2-3 years of planned withdrawals in cash and bonds can help you avoid selling stocks during a downturn. Bottom LineSome discomfort is part of investing, and there will almost always be a reason to worry about the markets. So rather than asking whether now is a good time to invest, I'd encourage you to ask: "If the market behaves very differently from what I expect over the next few years, will my retirement plan still work?" If the answer is yes, the headlines don't need to drive your decisions. 📚 What I've Been Reading
Thank you for reading! Please reply to this email with comments, questions, and/or feedback. Stay wealthy, Taylor Schulte, CFP® |