Earlier this month, I stopped my automatic monthly investment of $1,000 in the stock market through Vanguard’s Total Stock Market Index Fund (VTSMX), and it’s possible that this will prove to be a good decision. Shawn Tully from Fortune Magazine identifies four current asset bubbles that all investors should heed, and one of these bubbles is the stock market.
I began my monthly dip into the market with an investment in stocks through my SEP IRA last year around the end of March, so I benefited from one of the lowest recent points to get in the market. I followed that with the automatic monthly investment in my non-retirement account. Through 2009, I was dollar-cost-averaging as the stock market and the price of VTSMX increased.
According to Shawn Tully, you should avoid investing in the stock market, Treasuries, gold, and oil. These investments have all climbed too high recently although the recession is not too far in the past. For stocks, Tully looks at the market’s overall price to earnings ratio, which is historically high right now. This means that companies’ earnings are not high enough to justify the price of shares.
Here is the author’s warning about gold:
Prices are so high all over the world that people who once treasured their gold jewelry are now rushing to sell it. Swiss refiners are offering irresistible prices for bracelets and brooches, “cash-for-gold” stores are in Chicago malls, and suburbanites are hosting Tupperware-style parties where neighbors show up to hock their gold teeth.
When this happened in the early 1980s with silver, prices plummeted from $50 to $15 in less than a year. Look for gold to end up below $500 an ounce within two years.
Are you investing in the stock market or in gold right now?