Are We in a Stock Market Bubble

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Are you familiar with stock market bubbles? If you’ve been investing since before the housing bubble of 2008 then you are, but perhaps the 1999 dotcom bubble is a more poignant and painful reminder for you. In the runup to the dotcom bubble everyone believed that the internet was the future of technology. While that was true, it didn’t necessarily mean that every stock with a “www” in front of it was a winner. When the dotcom bubble finally burst it left millions of investors reeling from the pain. Is this tech-fueled runup a parallel phenomenon?

The truth is that no one can know. If we are in a bubble then we still have no idea how much bigger the bubble will continue to expand. It would be foolish to get out of the game while stock values continue to rise. At the same time if the bubble were to burst tomorrow, then you should be in an investing strategy that will protect your assets while leaving you exposed to investment gains commensurate to your risk tolerance.

If you are rushing to make stock trades based on the ups and downs of the market, then you don’t have a solid investing strategy. Your investment strategy should be a long-term approach that allows you to sleep well at night and check in on your statements monthly, quarterly, or even less. The GameStop frenzy has unfortunately created an environment where investors are fueled by FOMO (fear of missing out) more than by sound investing knowledge and strategy.

So to answer the question, no one can know if and when we are in a bubble. Regardless of the situation, investors should continue to buy into the markets on a regular schedule so that they experience exposure to growth.

I was talking with a client recently who shared that he had just put $100,000 into the stock market just ahead of the dotcom bubble. It promptly lost $40,000 worth of value. In the long run this didn’t matter because it came back to the original principal value, plus tripled his returns in the two decades since.

If you are in the retirement distribution phase of investing then perhaps take a little less out in down years, but continue to enjoy your lifestyle as long as it is feasible.

The key to a solid investing strategy is to invest early and regularly and most importantly, do whatever helps you sleep better at night.


Daniel Colston, CFP®
(540) 904-1670
dcolston@americanfp.us