The expected characteristics of a mature market, and the current market is mature by any definition, differ as dramatically from those of a young bull market as they do from those of a bear market, and possibly even more so. Even so, we are constantly told (mostly by brokerages) to keep investing at the same rate, no matter what the market is doing. To do otherwise, they suggest, is the arrogance of trying to outsmart the market.
That’s wrong. It’s the wisdom of investing based on the expected characteristics of the current market, and nothing else.
And what are current market expectations? Some consider the age of a bull market to be the key metric, while others point instead toward market valuations. Of course, this is longest bull market in history, and the Shiller P/E is as high as it was on the eve of the 1929 stock market crash. So while there is no consensus as to how such expectations should be formed, there is, nonetheless, something approaching a consensus as to what those expectations should be.
And they should be, in a word, poor. Here is a discussion on CNBC in which a number of brokerage houses lay out their forecast annual returns for the market over the coming years. The conclusions range from the low mid-to-single digits, down to a lowly 1% per year. If that’s true, then (horror of horrors), you’d actually do better in bonds!