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 John Nelson, financial planner at NelsonCorp Wealth Management. Welcome back, John.
John Nelson:
Thank you for having me, Brandy.
Brandy Auterson-Hurst:
So John, we’ve been hearing some worries that the stock market might be in a bubble. Are you seeing any similarities or differences between today’s market and past bubbles?
John Nelson:
Yeah, it’s a great question. It comes up a lot. I think there definitely are some similarities, but there’s some key differences too that we’re looking at. And that’s the graphic I have with me today. We’re looking at PE ratios to show some of the differences that we’re seeing. So it compares the market’s current price to its future expected earnings. So the higher the number, the more investors are paying for every dollar of profit. And as we look at things here, you can see as the ratios have climbed to levels that we saw previously in the dotcom bubble, the early 2000s, 2000, and 2001. And on the surface, that may sound quite concerning, but the key differences really are the margins, the profit margins many of these companies are working with. So how much is kept of every dollar in sales? And that is probably the biggest difference and gives us some indication and comfort that the margins are significantly more today than they were before.
Brandy Auterson-Hurst:
Okay. So what does this mean for investors?
John Nelson:
Yeah, I think just that looking at the valuation, seeing if those stay strong where they have been to support this and give the level of support in the market that we’ve seen to continue this bull market. If we do see deterioration there, I’d say that would be more of a concerning point for all viewers and investors that maybe some portfolio adjustments could be needed at that time. So staying focused on profitability and where earnings end up.
Brandy Auterson-Hurst:
All right, John, thanks for your insight today.
John Nelson:
Thank you, Brandy.
Past performance is no guarantee of future results. 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.