Is it just me or is the most popular word in the market “bubble?” There’s been a lot of talk about bubbles recently (a bubble being an over inflated market that is about to pop and drop back to the ground). Writers such as the author of this piece in the New York Times are announcing that stocks keep rising to overly expensive levels and that investors should watch out for a potential bubble pop on the horizon.
I honestly can’t decide if we are in a bubble right now or not. My gut tells me there is not an overall market bubble. Already, high growth stocks – i.e. Netflix, Twitter, Amazon – have gotten hammered this year in the market. I think we’ve already seen mini bubble pops in certain high growth sectors such as biotech, social media, and 3D printing (at least I pray they were the pops because I can’t handle many more losses in those sectors). Given the poor performance in the first quarter of 2014 I think any bubble talk is much less relevant now than it was in December or January.
One point I do agree on with the bubble backers is that if you are heading closer to retirement you should play it safe and stick to index funds. Eventually, most investments turn out fine if you can hold them long enough. There are plenty of stocks I sold too early and lost money on, when I could have made a ton of money if I didn’t panic and waited longer. If you have the ability to hold positions for years even if they go down, and you don’t need to worry about liquidating, then ignore the bubble fears altogether. If you may need the stock money via cash soon it’s probably best to stay out of the growth sectors and stick to safe blue chip stocks or index funds.