Meet Jess Uy, a financial advisor from Singapore who is exposed into global funds investing. Here’s the rationale on why he believes that there could be a possible market crash in 5 years time.
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Eventually it has to reset. That’s just how it works. We have already been on a very long bull run since the last financial crisis in 2008, normally there is a reset in 10 yr timeframes. We are already stretching out of that range.
Although this is also an indication that economies are getting stronger, once it starts to runaway, it will create problems. For now it is still manageable.
This is a bit related to item 2 above. Central banks normally increase interest rates to battle inflation. If they fall behind and inflation starts running away, they may have to raise rates aggressively which can impact businesses and households. Slower increases are more manageable as businesses and households can plan but once they start increasing rates faster than planned, it will be problematic especially for those who need to service debt (eg. corporate debts or mortgages, etc)
As of the moment, we are not there yet but eventually we will get there. With strong economic and corporate results this will usually lead to complacency and retail investors get excited and start piling into the stock market sending it much higher.
Although valuations have hit highs, we are also not there yet (in terms of being very stretched) but eventually it will happen. This is also related to item 4 above as strong economies and corporate results usually lead to investor confidence sending the market higher.
The fastest way to make money in the stock (equity) market is at the start of the bull run and at the end of the bull run. I think we are nearing the end for this time period. We may still end up with a multi year or multi decade bull runs but recessions and corrections will be part of it. So the next major pullback will eventually recover too but everyone should consider their objectives, risk appetite and timeframe when investing.
If someone needs money soon say for funding education or retirement, then they may choose to de-risk and allocate more for short term Low risk bond funds or even cash/cash equivalents. I’m not a big fan of bonds as the prices will plummet once interest rates rise but short term low risk bond funds are fine for liquidity needs. They are the least affected by interest rate hikes compared to longer term bonds. This doesn’t mean I advocate a full exit from the equity/stock markets but just a re-allocation. The level of re-allocation will depend on each individual’s needs. The issue is that some people take derisking to the extreme and miss out on the upside of the stock (equity) market for their longer term goals. For longer term investors, any “crash” is an opportunity to buy at really bargain prices. Since we cannot predict the future, we may not really be able to pinpoint the exact time of a market downturn but we have an approximate idea if stocks/equities are already cheap enough for longer term accumulation and longer term goals.
Hope this helps and happy investing!