QE: The Good and the Not So Good
Here is a snapshot I took of my 401k YTD returns and my personal reflections:
Holy Cow! That is amazing. Not only have we had a huge upswing in US stock indexes, my entire 401k portfolio is up 20.5% for the year. That includes all the other assets classes like bonds/cash that are pulling down our performance. My 401k has gained over $65k this year - that is more than my annual salary when I started working full time at my employer!
Makes me think about how close I may actually be to the financial freedom line. My 401k is growing at a clip greater than my expenses this year. It is a good year, but will it last? Even if it grows at 1/2 this rate when you combine it with the rest of our accounts/assets (IRAs, taxable brokerages, rentals) etc its still would cover our expenses. Growing at least 1/2 this rate seems possible while the economy is looking better - doesn't it?
The Not So Good:
Stock fundamentals appear to be less of a concern to investors. I want to invest my money where I can see it earn a 10% return or greater for the risk I'm taking. Generally price/earnings ratios continue to climb, now averaging 15-17+? On the surface that means buying with a projected <7% return assuming no growth (I tend to be pessimistic on valuing growth in general).
At some point earnings have to sharply increase or those ratios will come back down. I continue to shift more assets out of stocks over time because there is no way this can last; is there?
My view is this could go one of 2 ways. 1) We are in the midst of a 20yr+ stagflation period where governments will continue to inject as much capital as they can to get us out, but we will teeter back and forth for years to come as debt levels continue to improve. 2) Quantitative Easing will ultimately work and inject enough capital that our economy will begin to expand on its own. This will lead to inflation being a bigger problem that will erode spending power in at least certain areas. I don't know of a great way to protect our spending power from inflation, the only play I know is to hold stocks, real estate, minimize cash/bonds and hope for the best.
I'm no expert, but I'm still worried things are not as healthy as they appear.
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