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Alexandria Ikomoni: (Music) It’s now time for 4 Your Money. We’re joined here by David Nelson, CEO of NelsonCorp Wealth Management. Welcome back David.
David Nelson: Thank you, appreciate it.
Alexandria Ikomoni: Thank you. So getting started here, stock particularly in the US have been looking expensive in recent times. And how has this recent decline in stocks prices impacted us?
David Nelson: So Wall Street likes to do price things based on projected earnings. We’re not a big fan of that because typically it’s overstated and subsequently we’re trying to justify these higher prices. the typical person out there I think that’s your audience as well as the people that we work with are as a whole relatively conservative. They, they, they’ve worked hard for their money, they want to hold on to their money, and so what we would prefer to use is a what’s called the Shiller Index. People don’t need to remember the name. The Shiller Index is is developed by Yale professor, Dr. Robert Shiller, and he’s created this. And what he does is he goes back and he looks over the last ten year. And by looking at the last ten year, if they’ve been very good, historically, the next ten years aren’t going to be very good. And this chart is absolutely fantastic as far as visually trying to illustrate it.
David Nelson: What we find, I guess I’ll just just come down here to to most recent history. When you’re in the top band here, in the yellow or the orange green or orange red, rather, what you’re typically going to see here is that you have extremely high PEs, and as we’ll see from graphic two, graphic two will pull it in and say, when you’re in the high, you’re going to get terrible returns. When you’re in the low band, you’re going to get very good returns.
David Nelson: So we’re, we’re basically right here right now as far as in that top band equates to this. And what historically has taken place is over the next ten years, you’re average rate of return is 4.7%. So, in other words, not very good returns. Now contrast that to when we’re in the bottom, in other words, the market is sold off, things are really down. Here’s the the the what you typically can look to is somewhere between a 19% annual return and a 4% average return with the average being 11.2%. So, needless to say, it becomes obvious I’d rather have this, this type of environment, but where we find ourself today is in a very expensive environment based on Robert Shiller’s,,, tool set showing us that the returns again over the next eight to ten years are probably not going to be very good.
Alexandria Ikomoni: That makes sense, and just talking a little more about that, the information pertaining to valuations, how does that impact investors?
David Nelson: Yeah. So a typical person, unfortunately we, we, we, remember most recent history, and markets have been as a whole over the last five, seven years pretty good. And so people have that bias as far as in their investing demeanor. And what we want people to think in terms of is looking over a long period of time. In other words, like we were just looking at with the Shiller Index, where it shows a ten year history that when things have been as good as they have been, typically the following ten years are not going to be very good. So, again, we would not be rushing in and putting money to work today necessary, any additional money, just simply from the valuation perspective, things are very expensive today.
Alexandria Ikomoni: Thanks for that information.
David Nelson: Appreciate it.
Alexandria Ikomoni: And thank you for joining us this morning.
David Nelson: Thank you.
Alexandria Ikomoni: And if you missed any of our discussion, we’ll make it available for you on OurQuadCities.com. (Music)
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