Portfolio Update – May 2021 – Indicators of an Overvalued Stock Market and What You Can Do About It
- Has the stock market reached a permanently high plateau, or can we expect lower return the coming decade?
- Monthly Update for May 2021 with a fresh set of charts
I hope you are sitting comfortably and have fetched a nice cup of coffee or something more refreshing, because before we get into the monthly development for May 2021 of my portfolio, we have an elaborate analysis of the value of the stock market in front of us.
There has been a couple of things that have been bugging med lately. That is the current high valuation of the stock market regardless of metric used, and the fact that many non-professional investors' inability to understand that an average annual return of 7-8% on the stock market is just an average rather than something you can expect every year to come.
I think that many have been trapped in a recency bias that will catch up with them eventually, unless retail investors choose to diversify from an all-stock portfolio to something more similar to an All Seasons Portfolio.
I will explain why I think so in detail in this article, so let's just dive into it.
I recently bought the book Adaptive Asset Allocation by the team at ReSolve Asset Management. While the main focus of the book was risk parity and a different view thereto than what the more static All Seasons Portfolio strategy offers, there was one part in the background section that really resonated with me, and which I perceive that many investors, and especially non-professional savers, miss.