(01-11-2020, 07:11 AM)The Real Marty Wrote: The stock market is being propped up by low interest rates.  Stocks and bonds compete for investment dollars, and as long as you can buy stock and get more in dividends than you can get in interest from a bond, plus the chance at appreciation, stocks will do well.  

Right now the PE ratio of the S&P500 is very high by historical standards, but as long as events go smoothly in the world, and interest rates stay low, the market will stay up.  

One thing I worry about is a debt crisis.  Worldwide debt is very very high right now, and that usually results in a debt crisis of some sort.  An economic downturn leads to a few companies unable to pay their debts, and that leads to others unable to pay their debts, and it spirals downward into a recession or worse.  

The other worry is inflation.   If interest rates go up with the US sitting on 23 trillion dollars in federal debt, the amount of interest the federal government pays will go up, which will lead to more borrowing, and more debt, and more interest on that debt, and so on.  At that point, the federal reserve will step in and start buying up some of the debt, in effect "printing money," and that will lead to inflation.  

There is no risk free investment.   Stocks carry short term risk- the ups and downs of the market, but bonds carry long term risk- value being eroded by inflation.

If you have a long time horizon, say 20 or 30 years, the best thing you can do is put all your money into a stock index fund and leave it there.  Do not touch it no matter what.  Most individual investors buy high and sell low.  How many people panicked during the 2008 debt crisis, when the Dow went all the way down to about 6,600, pulled their money out.  Now the Dow is close to 29,000.  And how many people get all enthused and go back into the market when it's already gone up?  People tend to buy high and sell low.  The only way to avoid that is to steel yourself, put all the money you can spare for the next couple of decades into the market, and leave it there no matter what.

One of the lessons of the Obama years is that printing money does *not* lead to inflation on its own.  Inflation is caused by shortages.  Whether that shortage is caused by bad harvests, factories breaking down, unforeseen increases in demand for real goods, or Arabs refusing to sell oil, a shortage is a sufficient ingredient for inflation. The other thing that causes inflation is currency displacement, for instance when Argentinians decide that they want to deal in dollars even though their government deals in pesos. That causes the value of the peso to go down, in other words, inflation in Argentina.

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