Many articles and news reports have covered the Federal Reserve's concern about the apparent investor complacency bubble. Based on the market, I believe it to be a legitimate concern. We have higher than normal price-to-earnings ratios and all-time market highs, and the annuity industry is similar to that of the pre-financial crisis.
Given that the normal P/E ratio is around 16 for the S&P 500, we are approximately 20 percent overvalued in the stock market. When you look at the Baby Boomers, how many can sustain their standard of living if their retirement assets decreased by 20 percent in the next 90 days? My guess is many would suffer a nearly unrecoverable decrease in their standard of living.
More importantly, what is the psychological effect on those pre-retirees who have been battling to get back to their pre-financial crisis retirement accumulation? This generation has spent the last decade pushing a large boulder up the hill. Boomers have felt the impact of 9/11, the technology bubble, the financial crisis and now an apparent complacency bubble. Why would we let our clients continue to make the same mistakes?
It's time we stop waiting for interest rates to increase or for there to be a "better deal." Doing nothing only perpetuates the risk that is already being taken. If we don't protect our clients’ assets and wealth, they’re likely to repeat the same errors over and over again. Let's get off the merry-go-round and help them.
You should ask for meetings with your top clients to talk about taking their risk off the table and protecting their wealth. If you don't, someone else might do it for you.
© 2018 Ash Brokerage LLC.