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Cheat Sheet Q & A:
Today’s topic: What is the real value of the stock market?
What is the real value of the stock market?
Brian, with the stock market at an "all-time high" right now, it is easy
to assume that we are on the right track for recovery, although many
people do not take into consideration our massive dept and today's value
of the dollar. My question is this: what is the "real" value of the
stock market when compared to the value of the dollar vs. where we
were...let's say 10 years ago? Just because we are at unseen levels,
does not mean the "value" is there.
Bottom Line: This is an excellent question that hits right at the heart of what makes many investors nervous despite most sitting on nice gains over the past few years. First let’s establish the barometer of what value in the stock market actually means. The best barometer is the P/E (or price to earnings) ratio. This values companies based on how much they’ve actually earned. The best index to study for historical comparison is the S&P 500. So let’s get to it.
So… You can see that the stock market is at a level of valuation that is higher than the historical average. More on that in a moment. The question asks about valuation compared to ten years ago.
Now there is another key component of value for many investors especially these days – dividend payouts. So what is the historic average of dividend payouts for the S&P 500?
So let’s tie this all together. Is the stock market potentially overvalued based on historical pricing? Yes. But the question is where else do you turn for a better return on your investment? This is where I worry about what will happen to the stock market when the Federal Reserve stops pushing people towards the stock market as a result QE and 0% interest rates.
The best case scenario is that earnings and dividend growth catches up to prices by the time that the Fed does end its current policy and values can be historically justified.
With regard to the value of the dollar ten years ago as it pertains to the stock market… Because
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Return of home equity part 2 - how much real-estate has appreciated in the last year:
Bottom Line: So just how much home equity has been restored as a result of the housing recovery over the past year? A lot – $1.6 trillion to be near exact. While we’re still trillions away from the peak in 2007 - there is economic impact and a lesson within this information. I’ll tie them together.
Economic growth and recovery is the best way to improve an economy. Remember that $900 billion debt funded stimulus package from the Federal Government? How effective was it? How much will it have cost us by the time it’s paid back with interest?
An improving housing market produced $700 billion more than that stimulus package and it didn’t require debt and didn’t cost us a penny. This is part of the greater education regarding the economy that’s needed these days. The economy and money supply isn’t static in nature. Wealth is created by growth or destroyed by recession. There aren’t X number of dollars available and in order to become wealthier they must be taken from others. It’s that later point that has led to the eat the rich philosophy of liberals. Additionally it’s completely counter productive to the economy improving and thus money supply increasing for everyone to be able to benefit from a recovery.
The stock market has sparked the return of the American millionaire:
Bottom Line: The stock market is the greatest wealth creation machine in the history of the
The all time record for American millionaires was 2006 in which 9.2 million millionaires existed in the
Become debt free – be part of the 31%:
Bottom Line: A lesson that many of us learned during the Great Recession – the potential downside of debt. As a result more having been seeking to rid themselves of debt. Currently 31% of adults are debt free. That’s a 5% improvement over the last decade. It’s also a really good idea if you’re worried about the debt problems of the
My first rule of retirement is: A mortgage isn’t a retirement plan. In reality we should all be looking to deleverage and own what we can outright if possible. I don’t expect that you’ll quickly and easily be able to rid yourself of debt but let me give you an example of how I’ve changed the way I use available resources.
Once upon a time I’d carry a car loan and a mortgage making the monthly payments while allocating maximum resources to invest. The premise being that I could earn more with my money than the interest rate that I’d be paying off otherwise. While I was successful with that strategy and likely still would be – I want to hedge against the potential downside of this country and others.
If awful economic times were to occur, you can with stand a great deal of it if you own outright what’s most important to you.
Game changer for Gold in
Bottom Line: A few states have tossed around the idea of creating their own gold standard to insulate themselves from economic calamity. It’s never really gone anywhere. This time could be different.
Let’s say that the
If the bill does pass expect a decent run for gold prices and a large state becomes a big buyer.
Apple increasing security of iCloud and user accounts:
Bottom Line: Apple has enabled a two step process to increase the security of your account if you choose to do so. When described it can sound complicated so let me hit the high points and try to simplify.
If you do want the added security:
When you access your settings in the future you’ll be sent a verification code and you’ll have to use your established pin to access it. This could help prevent someone from gaining access to the personal account info you have stored with Apple.