High-Flying Stock Markets Are Nothing To Be Afraid Of

Even if markets corrected, by, say, 10%, investors would be well up on a year ago.

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

The last eight years or so have given us what must be the strangest stock market bull run in history. I wrote five years ago that this is the bull market that nobody loves, and investors find it just as difficult to embrace today.

Wall Street, London and other major global stock markets are nudging all-time highs, but investors continue to remain sceptical. Are they right to be afraid?

Big money

Nobody wants to throw their money into the stock market just as it runs out of juice. However, refusing to invest also carries major costs. Investors have made big money in recent years, but those who have hung anxiously on the sidelines have completely missed out.

Flying high

Global stock markets are flying at the moment, with many posting rises of almost 20% over the past year. In the US, the Dow, S&P and NASDAQ all posted record closes last week. In the UK, the FTSE 100 recently broke through 7500 for the first time ever. The MSCI All World Index has also hit its all-time high, boosted by strong Asian markets. Normally, investors would be cheering along. Why so nervous?

Trumped!

Many fear that US stocks look overvalued, with the S&P 500’s price/earnings ratio currently standing at 25.80, well above its long-term mean of 15.90. They are particularly concerned that the Trump trade is now played out, amid suspicions that his tax, infrastructure and military stimulus blitz could prove a damp squib.

Zero options

The question you need to ask yourself is this: what would you do with your money if you sold up today? Park it in cash or bonds, for a near-zero return? The global property market is starting to wobble, and you can’t get your money back in a hurry if prices slide.

By selling up you would also forego all those juicy dividends, plus further stock market growth if you get your timing wrong, and almost certainly will.

You then face the tricky decision of when to buy back in.

Fun, fun, fun

Equity investors should be celebrating rather than fretting right now. They have had a tremendous year. Enjoy!

Even if markets corrected, by, say, 10%, investors would be well up on a year ago. You would still be richer.

Also, if you cannot cope with a temporary market correction, you shouldn’t be invested in stocks and shares anyway. If you plan to leave your money in the market for at least five or 10 years, and preferably longer, you can ignore short-term slips.

Show some love

This market could fly even higher. Alternatively, it could crash. Nobody knows. Either way, it is nothing to be afraid of. Simply hold on until the market recovers, as it always does.

You should also treat any dip as an opportunity to pick up your favourite stocks at reduced prices. Market crashes are nothing to fear. Instead, you should learn to love them.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

potted green plant grows up in arrow shape
Stocks for Beginners

1 Canadian Growth Stock That Could Double Your Money in an Economic Recovery

The market downturn is an opportunity to lock growth during the economic recovery. This stock is a blend of value,…

Read more »

Bank sign on traditional europe building facade
Investing

RRSP Investors: Here’s the Best Canadian Bank Stock for Your Buck

Bank of Montreal (TSX:BMO)(NYSE:BMO) stock is getting far too cheap to ignore after the latest spill in the big Canadian…

Read more »

analyze data
Dividend Stocks

2 Safe Dividend Stocks That Could Help You Fight Inflation

A dependable stream of passive income is one way to help offset rising inflation rates. Here are two top dividend…

Read more »

edit Person using calculator next to charts and graphs
Dividend Stocks

Stay Invested in a Recession: Increase Positions in 2 Value Stocks

The suggestion of market analysts is to increase positions in two value stocks if you want to stay invested amid…

Read more »

Diagonal chain made of zeros and ones. Cryptocurrency and mining.
Cryptocurrency

Is This the End for Crypto?

Bitcoin (CRYPTO:ETH) is in the midst of its worst crash in years. Is this the end?

Read more »

Business success with growing, rising charts and businessman in background
Investing

4 Growth Stocks That Could Make You RICH by 2030

Canadians should take advantage of discounted growth stocks like goeasy Ltd. (TSX:GSY) and others in this summer bear market.

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Dividend Stocks

3 Dividend Stocks to Buy as Inflation Surges in Canada

If you're worried about how surging inflation may impact your portfolio, here are three of the best dividend stocks to…

Read more »

You Should Know This
Dividend Stocks

High Inflation: The Good and the Bad for Canadians

Consider tucking away some of your long-term savings in quality dividend stocks like Brookfield Infrastructure in this correction.

Read more »