Considering the underwhelming performance of the economy, which has mostly limped along for the last two years, we are in the midst of a remarkable run for the stock market. Consider this: in 2013, the market set around 40 all-time highs! And we’ve had a little over half that number of all-time highs already in 2014, and we’ve still got almost half a year to go.
Here is my concern: This stock market behavior is the essence of irrational exuberance because it’s not being driven by corporate earnings. If it isn’t earnings that are behind the rise, what is it? I honestly think it all comes down to low interest rates. If you can’t get any yield with your money in the bank, you are that much more likely to play the market.
For many folks—including and especially those retirees who have worked all their lives, saved prudently and did everything “right”—who are watching their neighbors clean up in the stock market, the temptation is not hard to understand. The problem, however, is that all of these newcomers are entering the market at its peak—and that is a dangerous place to be. When the other shoe drops, a lot of people are going to get hurt.
Instead of letting a low interest rate environment drive you to take on more risk to find higher yields, it makes sense to explore other options, and look for safer and more sustainable ways to generate income for your retirement. I’ll have some more thoughts about how to do just that in my next blog post.