It has been a particularly difficult time for most investors.
Investing always has not been simple, but over the past two years, it has been an unusually complex time. The unfortunate investors who counted on the typical markets have been disappointed and adversely affected.
Investors correctly are troubled about where to invest. They recognize that financial assets are expensive at the moment.
A leading German firm Deutsche Bank reviewed the price of equities, bonds, and residential assets over a long period, as far back as the 1880s. The analysis asserted that of the three assets cases, bonds are the most expensive and are close to their all-time high, not a place for careful investors. A combination of low inflation and big purchases of government bonds by central banks means that returns are close to record lows. Therefore, nominal yields accounting for inflation have been extraordinarily low for years. For common stocks long-time profits have only been this weak very few times.
Stocks, bonds and property have not always moved in the same direction. At various times residential properties by comparison looked cheap so some investors bid up prices, lured by better returns available in less liquid (easily traded) vehicles.
If bonds were held to maturity, in many instances their returns based on inflation would be negative. When it comes to common stocks, the returns can be expected to grow only as profits expanded rapidly, a remote possibility now in view of the sluggish economic outlook.
The only other possibility would be if speculators pushed up valuations. Profits already are close to record levels relative to the overall economy. Hence, rapid growth is unlikely. Thus, betting on higher valuations is gambling against the odds.
Worse still there always is the possibility that profits or valuations will return to their historical norms. If that were to happen the real returns would be negative. The same is true for government bonds, corporate bonds and too for real estate.
All but ignored is the fact that stock buybacks have been boosting stock prices. Some investors consider buybacks beneficial but they push up prices artificially. They deplete company cash reserves and they reflect the absence of better alternatives looking for places to deploy company reserves.
Boosting stock values through buybacks bails out executives who have been given stock options, but other than that they are not productive over the long term.
Given the anticipation of only subdued returns, this is a difficult time for investors.