In recent months, Nobel laureate economist Robert Shiller has said that bubbles may be brewing for stocks, bonds and the residential housing market.
So it should come as no surprise that the Yale professor told Yahoo Finance,
"this is not the golden age for investing, and we shouldn’t assume that it’s going to be as it always was."
Shiller's cyclically-adjusted price-earnings ratio for the S&P 500, which encompasses 10 years of earnings, is higher than any time except 1929, 2000 and 2007, periods that were followed by stock crashes.
As for bonds, with yields so close to zero, prices have no place to go but down, Shiller has pointed out. The 10-year Treasury yield stood at 2.06 percent Thursday morning. And real estate is soaring in some bubble markets, such as Florida.
So what are we to do as investors?
"The first solution for an individual is to save more," he said. "That’s advice which I give to individuals thinking that they aren’t going to take it. If everybody saved more, then we’d have a problem."
Former Morningstar analyst John Coumarianos agrees with Shiller that the strong rallies enjoyed by the stock and bond markets since the 2008-09 financial crisis are unlikely to continue.
"Stocks and bonds appear poised to deliver lower returns than they have. And, of course, cash currently yields nothing, guaranteeing a negative real or inflation-adjusted return for the time being," he writes on MarketWatch.
"Investors might think the strongest response to this situation is to take more risk. But taking extra risk in markets that already seem overpriced could result in severe losses. Instead, you must save more to meet financial goals."
As for stocks, they "will probably lag in the coming decade, because they are historically expensive," Coumarianos says.
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