When asked about the current state of financial markets, the head of the Dutch central bank – Klaas Knot, who is also a governor on the European Central Bank – has said that “the picture resembles that of the period before the financial crisis.” In the United States for example, the S&P 500 is up 12.5 percent this year, the NASDAQ is up 20.5 percent. According to Mr. Knot, we are “about to witness a brutal collapse in asset prices.”
Wolfgang Schauble – the German finance minister, believes that as a result of the trillions of dollars that central banks have introduced to the financial markets, stocks are overvalued and there are risks of “new bubbles.” That said, some experts believe the best market performance comes before a bubble.
We should never fear a bubble, we should welcome them, encourage them even. They are rare, fantastic, twice-in-a-lifetime opportunities. If you spend those moments sitting on the sidelines wagging your finger at everyone else’s stupidity you are missing the point. – Marcus Padley, The Sydney Morning Herald
The obvious concern though is the risk of a crash. Not sure when to sell your investments to avoid financial ruin? Of course you’re not. At some point when you are investing there will come a time when there is no science, no fundamental basis for anything, there is just your gut feeling. Understand that it’s unlikely a financial adviser will ever advise you to sell. The finance industry works very hard to get you into financial products – like stocks and bonds, so they will rarely (if ever) tell you to get out of the bond or stock market. The decision to sell has to be yours and yours alone.