that? By crash I'm talking about 40%-60% range like the '74-75, the dot-com one and the housing bubble one. Is there some reason one of those is never in our future? What has changed that has eliminated any possibility of that in the future?
The price/earnings ratio is way above any previous time in our history except prior to the dot-com crash. Is there no upper limit that the P/E ratio can reach and maintain now?
What I've been saying is one can be virtually certain there will be one in the future, we just don't know when, it could be a decade or decades in the future and one would miss out on a lot of rise between now and then.
Just like those blaring bubble bubble bubble in 2014 would have missed out.
An investor who had ignored the blaring and put $10,000 into the S&P 500 (via VFINX S&P 500 fund) mid 2014 would have $27,575 now, just 7 1/2 years later.
A 50% crash tomorrow would still leave one with a $13,787 balance, 38% above one's initial investment, and with outsized recovery growth rates going forward almost assured.
If one has 2 or 3 doublings (a doubling is something the stock market as a whole manages to do about once every 7-8 years ON AVERAGE), a 50% crash just gives up one of those doublings, and anyway that's just a temporary give-back.
Heck, if we're just talking about the price, a single doubling followed by a 50% loss brings us back to the same price; in the meantime we've collected the dividends which are quite competitive with bond funds, so one hasn't lost anything.
A point I was trying to make in my Dec 2 post https://www.democraticunderground.com/11213498 -- that someone investing at the very, very worst time -- the very peak of the housing bubble -- would have done quite well between then and now -- over 9%/year annualized.
And that time in the market works out much better for the vast majority of people than trying to time the market.
EDITED TO ADD - back to the Dec 2 post, bucolic_frolic made the very good point that the stock market is undoubtedly being buoyed up by years of $trillions of bond-buying by the Federal Reserve to reduce interest rates. So the 9.88% annualized rate of return between the housing bubble peak and December 1 value is higher than if the Fed wasn't pumping in all that stimulus.
So, I figured what if the market is, say, 50% overvalued? i.e. instead of a "3" value, it should be a "2" value? I figured the rate of return after the market adjusted back to the "2" would be a still very nice 6.84%/year annualized average return. (I used the Vanguard Total U.S. Stock Market Index fund VTSMX rather than the S&P 500 fund for this calculation, but would be very similar for the S&P 500 fund ). And again this is for someone investing at the very very worst time -- the peak before the housing bubble crash.
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