Announcer:
4 Your Money is brought to you by NelsonCorp Wealth Management.
Brandy Auterson-Hurst:
It’s now time for 4 Your Money. We’re joined by Nate Kreinbrink, Financial Planner at NelsonCorp Wealth Management. Welcome back, Nate.
Nate Kreinbrink:
Thanks again for having me.
Brandy Auterson-Hurst:
So stocks seem expensive right now. Should investors be concerned about that?
Nate Kreinbrink:
Well, it’s true. Stocks are currently at high valuations today. The S&P 500, for example, is currently priced at about 23 times its projected earnings for the year and about 20 times its earnings for next year. So on the surface, this can seem like a red flag, but there’s more to it. And so we’ve got a chart here that goes into this a little bit more.
So what we’re looking at here is the stock market returns based on different starting valuation levels, going all the way back to 1871. It’s showing that returns are indeed the strongest when valuations are very low, but you can see that once you get past these cheapest groups, the differences mostly flatten out as you move to the right there. So while it’s true that high valuations may cap some of the upside, history does suggest that this doesn’t automatically lead to poor returns.
Brandy Auterson-Hurst:
Okay. So what should investors take away from this?
Nate Kreinbrink:
Well, historically, just because valuations are high, it doesn’t necessarily mean that the markets are in trouble. Unless we are at extreme levels of valuation, that by itself isn’t a great way to necessarily time the market. So it’s always important to look at the big picture. Momentum, earnings and how the economy is actually holding up, need to be taken into account and are a big part of it and are a big consideration when we’re looking at this big picture here.
Brandy Auterson-Hurst:
All right, Nate, thanks for your time today.
Nate Kreinbrink:
Thanks again for having me.
Brandy Auterson-Hurst:
So if you missed any of our discussion, we’ll make it available for you on ourquadcities.com.
Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal.
Indices mentioned are unmanaged and cannot be invested into directly.
This video includes a paid appearance.