10 Financial Services That Are A Waste of Money

My Comments: This comes from Britain, so a little translation may be required, but the message is useful here.

Last month, I had a conversation with an widowed client (81 y/o) who was sent  an ‘encouraging’ letter, urging her to buy an extended warranty for her 7 year old car. It caused her to be fearful on two fronts: one, the cost of the coverage and two, that her owning a car is now an existential threat to her finances. It has about 25,000 miles on the odometer.

After 30 minutes of back and forth, she decided she would to sell the car, stop paying for insurance, gasoline, etc., and tell the warranty company to kiss her a**. If she needs to go to the grocery store, or somewhere else where her friends cannot easily pick her up, she’ll call UBER. She already has the app on her phone.

By Amelia Murray 15 February 2018

The financial services industry can be a nightmare: from extended warranties to credit reports, everyone is trying to sell you something they claim is “essential”.

Must-have offers flood our inboxes, come through the door and are pitched over the phone during unwanted calls.

But how do you spot the rip-off from the essential? Which?, the consumer organization, has put together a list of the top 10 financial products you don’t need to pay for – either because you don’t need them or because you can get them free elsewhere.

Credit score subscriptions

Why pay for a credit score subscription when a number of firms offer reports free of charge? Experian charges £14.99 a month, or around £180 a year, for a “CreditExpert” subscription, which offers fraud alerts in addition to a daily credit report. An Equifax subscription costs £14.95 a month.

Noddle, Clearscore and MoneySavingExpert all offer free credit reports and if you keep a close eye on them you’ll be able to spot any suspicious activity yourself without paying a premium.

PPI claims management firms

Banks began aggressively selling payment protection insurance alongside loans, mortgages and credit cards in the Nineties after discovering that they were highly profitable.

Millions of people were mis-sold the policies and ended up paying thousands of pounds for insurance they were led to believe was essential. But many didn’t need it or couldn’t use it because they were self-employed, for example.

The City regulator started to investigate the problem in 2005 and began to crack down on firms that sold PPI in 2006, imposing fines and penalties. It recently launched a multi-million pound campaign to encourage people to claim compensation for mis-sold PPI.

The PPI scandal fueled the rise of firms that offer to manage claims on a “no-win, no-fee” basis. These companies can take up to 40pc of any compensation paid and many consumers don’t realize they can make the claim themselves without charge.

The deadline for PPI claims is August 2019 but many people were contacted by their banks between 2013 and 2015 and given a three-year deadline. Which? has a free online tool that takes you through the claims process.

Overs-50s life insurance

While these policies offer a guaranteed lump sum on death in exchange for a monthly premium, the risk is that the payout will be less than what the policyholder pays in.

The big draw is cover without the need for a medical – so anyone can get a plan – but the longer you live the more it will cost you. If you stop paying you’ll get nothing and will lose everything you’ve already contributed.

For example, a 56-year-old who pays £11 a month to Royal London will get a lump sum of £3,012 when they die. They’ll be ahead financially if they die before the age of 79 but if they live longer they will pay more than they get back.

Many people take out these policies to pay for their funeral. But the cost of dying is outpacing the cost of living so the lump sum guaranteed may end up not being enough. Funeral costs have risen by 112pc since 2004 to stand at £4,079, according to SunLife, the insurer.

If you’re in good health it may be better idea to “self-insure” by putting aside money in a savings account.

‘Packaged’ bank accounts

A number of banks offer accounts that come with add-ons such as travel, mobile and motor insurance for a monthly fee. The cost is typically between £10 and £15 a month, although NatWest’s Black current account costs £28 a month.

But the costs can’t always be justified and the value of the extras can vary widely. Analysis by Which? found that some accounts offered benefits worth £346 a year while others added up to just £102.

As with PPI, some banks have been accused of miss-selling packaged accounts. For example, if you were told by the bank that you had to have one of these accounts or later discovered that you were too old to be covered by the travel insurance, you may be able to claim your money back.

Lifetime trusts

“Lifetime trusts” are supposed to protect your property and assets from being used to pay care home fees. If you need care, the idea is that the trust will cause your assets to be disregarded when you are assessed for state funding.

However, you could find that after spending thousands of pounds setting up a trust the local authority decides that you have deliberately deprived yourself of your assets. In this case the trust will make no difference and your assets will be taken into account anyway.

Which? suggested setting up a “will trust” instead, which is more reliable and cheaper. This will mean half the value of the house is disregarded if the surviving spouse needs financial assessment for care.

Extended warranties

Paying to cover your household appliances can prove costly. A three-year warranty for a £550 washing machine could cost around £199, or 36pc of the sale price, according to Which?

But if you invest in a good-quality machine you’re unlikely to need a warranty. Which? said the majority of white goods it recommended didn’t break down in the first five-years.

Instead of buying a pricey warranty the organization suggested setting aside money yourself to pay for any repairs.

Boiler insurance

Unless you’ve got an especially dodgy boiler, you could end up paying much too much to cover it.

The average cost of a servicing contract is £242 a year and the average cost of a repair is £194, while an annual service costs around £75. But you’re probably not going to need to get the boiler fixed every year. Which? said it would be cheaper to self-insure and pay for repairs yourself.

Funeral plans

Most pre-paid funeral plans cost between £3,000 and £5,000 but don’t include everything you might expect, such as burial plots, headstones, flowers or doctor’s fees. You also don’t know what will happen to the funeral provider in the future.

James Daley from Fairer Finance, the campaign group, said he was concerned that funeral plan providers might not put enough aside to fulfil the promises they had made to their customers, who wouldn’t be around to hold them to account when a claim is made on the plan. He also highlighted a lack of transparency and regulation in the industry.

Some providers also cap the contribution towards burials. For example, a Dignity funeral plan can cost up to £4,035 but it will put just £1,220 towards the burial costs. This will rise in line with inflation.

As with over-50s life insurance, it may be a better idea simply to save up the cash yourself.
We explain what’s covered with life insurance and funeral plans here.

Mobile phone insurance

Avoid buying mobile phone insurance from a network provider because it’s expensive and you may have to pay a compulsory excess if you need to claim. Which? suggested that insurance could cost as much as £160 a year for an iPhone with an excess of £125.

A better option is to add “possessions away from home” cover to your home insurance for around £16 a year.

Car hire excess waiver

Expect the hard sell when you rent a car. Sales staff will offer you expensive add-ons such as satnavs, baby seats and “super collision damage waiver”.

This covers the first part of any claim that drivers need to pay if the car is damaged or stolen, typically between £500 and £2,000.

At-desk excess cover typically costs £20 per day, but sometimes more. Hertz, for instance, charges up to £35 a day. But if you buy stand-alone excess insurance before you go, you can get it for a few pounds a day.

Which? estimated that you could pay £173 more if you bought a super collision damage waiver from a car hire company than if you bought it directly from an insurance firm.

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The Market Is Finally Getting the Joke

My Comments: I struggle, day to day, just like you, to figure out what the markets are going to do because so many of my friends and clients are exposed to market risk. Are you exposed to market risk? Does it worry you at all?

If not, you don’t need to read this. But if it does worry you, then perhaps a few minutes reading these comments from Scott Minerd will be good for you. And oh yes, there are ways to shift the risk of a downward correction to an insurance company and by so doing, preserve your principal and market gains from a crash.

Scott Minerd, February 21, 2018

The last two weeks have been pretty exciting, certainly a lot more interesting than anything we’ve been through over the last year. Given the recent market dislocation, there is a basis to rebalance portfolios and do trades to take advantage of relative repricing. At a macro level, it should not surprise anyone that rates have begun to rise—we have been talking about the Federal Reserve (Fed) tightening, we have been talking about how the Fed is behind the curve, how the market has not believed the Fed, and that someday this was going to have to get resolved, probably by the market having to adjust to the Fed’s statements. The market has now gotten the joke. I still don’t think the yield curve is accurately priced, but it is a lot closer today than where it was at the beginning of the year.

The concern, as I explained in A Time for Courage, is that now the market is moving from complacency—where it really did not believe the Fed was going to do what it said it was going to do—to a time when it has begun to realize that the Fed may be behind the curve. The market is now coming to believe that the Fed is not going to make three rate increases this year, it is going to make four. And so, rates start to rise and the whole proposition that the valuation of risk assets is based upon, which is faith in ultra-low rates and continued central bank liquidity, comes into question. As markets lose confidence in that view, investors have started to rearrange the deck chairs by repositioning portfolios.

Anytime we see strength in economic data, we are going to see upward pressure on rates. Upward pressure on rates is going to result in concern over the value of risk assets, and we are going to have a selloff in equity markets, or the junk bond market, or both. Credit spreads will widen. The reality of the situation, however, is that the amount of fiscal stimulus in the pipeline, the U.S. economy fast approaching full employment, the economic bounceback in Europe, and the pickup in momentum in Japan and in China are all real. Against this backdrop, even a harsh selloff in risk assets is not going to derail the expansion.

The Fed knows this, and for that reason the Fed is shrugging its shoulders and saying, “Okay, we don’t have a mandate around risk assets, but we do have a mandate about price stability and full employment. And it looks like we’re at full employment or beyond full employment, and the thing that seems to be at risk now is price stability. We’ve got to raise rates.”

What does that mean for investors? Markets are engaged in a tug of war between higher bond yields and the stock market. In the near term, the two markets will act as governors on each other: Higher bond yields will drive down stock prices, and lower stock prices will cause bond yields to stop rising and to fall.

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“The market is moving from complacency about the Fed to realizing that it may be behind the curve.”

Scott Minerd

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An analogue to today may be 1987. That year began against the backdrop of 1985/1986, which had seen a collapse in energy prices. In 1986 oil prices were very low, and concerns around inflation had diminished. The Federal Reserve had dragged its feet on raising rates. As we entered 1987, in the first few months of the year the stock market took off. By the time we got to March, stocks were up 20 percent. In April there was a hard correction of approximately 10 percent. As fear overtook greed, market participants became cautious on stocks. Going into that summer the stock market rallied another 21 percent from the April lows. By August we were at record highs; interest rates started to move up; the Federal Reserve was raising rates; the dollar was under pressure; and there were increasing concerns over inflation. The concern was the Fed was behind the curve as it accelerated rate increases. By October things were becoming unhinged. Bond yields had risen in the face of an extended bull market in stocks. The market reached a tipping point and began its infamous slide. By the time we got to the end of the year, the stock market for the year was up just 2 percent. That was the stock market crash of 1987, which wiped out about a third of the value of equities in the course of a few weeks.

Today, investors have the same sorts of concerns they had in 1987. For now, the market has gotten a reprieve. Soon, investors will start to have confidence in risk assets again. Risk assets like stocks will start to take off. Eventually, the perception will be that the Fed is falling behind the curve because inflation and economic pressures will continue to mount. Eventually the Fed will acknowledge that three rate hikes will not be enough, but it is going to raise rates four times in 2018, and market speculation will increase that there may be a need for five or six rate hikes. That will be the straw that breaks the camel’s back.

This is a highly plausible scenario for this year, but who knows how these things play out in the end. The reality today is that the economy is strong, interest rates are rising, and equities look fairly cheap. The Fed model right now would tell you the market multiple should be 34 times earnings. That is just fair value, not overvalued. And based on current earnings estimates for the S&P this year, the market multiple is closer to 17 times earnings. If stocks go down by 10 percent, the market multiple would drop to 15 times earnings. This would be getting into the realm of where value stocks trade. If there were a 20 percent selloff, you’re at a 14 times multiple. These market multiples don’t make sense. Markets do not price at 14 times earnings in an accelerating economic expansion with low inflation.

What’s Happening This Week In The Markets?

My Comments: Somewhere in the news cycle there is always a story about what’s happening in the stock and bond market and whether or not there’s a reason to get freaked out.

Media companies these days are overwhelmed with crisis after crisis and spending much time on this issue is a waste of energy and limited resources. Only a retirement planning junkie like me is willing to pay attention. It’s a miracle you’ve read this far…

Anyway, from time to time I find in my inbox a report from J. P. Morgan, a global asset management firm with solid information. At the bottom is a link to their two page report that appeared this morning.

Here are two excerpts if a quick summary is all you have time for:

January’s inflation
report confirms that deflationary fears are
easing, and that an aggressive rise in
inflation is not materializing.

…risks stemming from rising (interest) rates and higher
wages will build as the economy moves
later into the business cycle…

What I infer from the report is that the recent volatility was healthy in the short term but that long term, all bets are off. Here’s the link to their report: https://goo.gl/By6P5E

Here’s Why Markets Will Head Downward

My Comments: Now that I’m in my mid 70’s, I’m far more worried about the ups and downs of the markets than I was 15-20 years ago. My ability to pay my monthly bills shrinks exponentially when the market crashes and my retirement money is exposed to that risk.

Ergo, I either do not have much money exposed to that risk, or I’ve repositioned it such that if there is downside risk, I’ve transferred that risk to a third party, ie an insurance company. You should consider doing the same.

BTW, QE means ‘quantitative easing’ and refers to the approach by the Federal Reserve to lower interest rates and to keep them low. That has  ended since the Fed is now slowly raising interest rates.

Clem Chambers,  Feb 12, 2018

I’m completely out of the markets in the U.S., Europe and the U.K. It seems as clear as it can be that the market is in for a huge down.

Now there are permabulls and permabears and if you read my articles over the years calling higher highs in the Dow you might think I am a permabull. But I am not, and if you hunt enough you will find my articles calling the credit crunch back in 2006-2007 here on Forbes and again the post crash bottom to buy in.

I can, and do, go both ways.

It has to be said, calling the market tops and bottoms is a tricky business and you can’t always be right, but there is only one thing you need to know and only one thing you have to know when investing and that is, “which way is the market going. ”

It sounds simple, almost asinine, but it isn’t because most people have no view on market direction, or if they do it’s automatically ‘up.’ As such, most people do not know which way the market is going and as such are at more risk that they need to be.

So where are we now in the markets?

Well, here is history:


This is a terrifying chart for anyone who is long.

Why? Well, first off you can see the very characteristics of the way the market moves have changed for the first time in years. Up close it’s even clearer:

The market has been going up like an angel for a year, the volatility has fallen to nonexistant. Forget the tendency for the price to go parabolic, it’s the day to day footprint of the price action that’s even more important here. Now this style has broken. Something has smashed the dream.

This giant burst of volatility tells us that there is huge uncertainty in the market.

So ask yourself what that involves?

It involves a change of investment environment and the participants in the market fighting that change.

“Buy the dip” is the brain dead mantra that has harvested lots of profits through the era of QE ever-inflating stock prices. What if that stops working? The crowd ‘buys the dips’ but the negative environments rains on that parade and the market begins to shake as the two conflicting forces meet.

Who do you put your money on? The crowd or a new market reality?

I bet against the crowd every time; you cannot fight market systemics.

So what is this new reality? What is causing this? The pundits are unclear, spouting all sorts of waffle that would have been true last year but weren’t and must somehow now be the reason.
Amazingly, few can see the obvious. Where are the headlines?

QE made equities go up. Does anyone disagree?

‘Reverse QE’ is making it go down. Reverse QE is where the Federal Reserve starts to sell its bond mountain for cash. It pushes up interest rates, it sucks money from the economy and straight out of the markets.

Is that ringing any bells?

Reverse QE started in September and month by month is ratcheting up. By next September it will hit $50 billion a month from the starting point in September of $10 billion.

The market is crashing because reverse QE is biting and it is going to bite harder.

There is trillions of dollars of reverse QE to come. Years of it.

Now I suppose it is hoped that U.S. fiscal loosening, tax cuts and overseas profitability repatriation will counterbalance this huge liquidity hit, but for sure this new cash will not flood straight into equities. I’m sure a strong economy is meant to pump liquidity into the loop via profits too, but will these do anything but hold the stock market at a flat level for many a year?

However, this is ‘unorthodox monetary policy’ in reverse. Do you remember when QE was called ‘unorthodox?’ Well, we are back in unorthodox territory again and this is not the happy slope of the mountain of cash, this is the bad news bloody scrabble down the other side with trillions of less money all around.

Somehow this ‘unorthodox’ unwinding of liquidity is aiming for a smooth transition. Well, they are going to need good luck with that and it looks like the process is having a rough start.

So reverse QE could stop. The Fed could halt the program. However, it seems unlikely they would pull the plug on the whole program that fast and then what? First they’d have to take the blame for crashing the market, then they would have to tacitly admit they are stuck with mountains of debt that they will have to roll forever.

That means reverse QE is going to have to punch a far bigger hole in the market than we have seen before it hits the headlines. So where is that? 20,000 on the Dow, 18,000?

Well that’s my feeling, which is why I am cashed up.

So take a look at the chart and remember that reverse QE is here and until further notice the Fed is shrinking its balance sheet, which means one thing… The market is going down.

All of a sudden knowing which way the market is going doesn’t seem so asinine.

The Retirement Savings Mistake That 68% of Baby Boomers Regret

My Comments: I have a client, age 58 and single. I’m unsure just how much money she has set aside for her future. I have every reason to think she’s healthy and given statistical probabilities, will live another 30 years or more.

She lives a very busy professional life and finds it hard to focus on her financial future. The language, the concept, the details are outside her comfort zone, so she ignores them until I make a lot of noise in her ear.

My challenge, as a financial professional, is to somehow influence her thinking so that she doesn’t find herself 20 years from now with not enough money to pay her bills. If she does live to 88, she’s still going to have core expenses to pay.

Things like groceries, cable TV, a phone, food, insurance, new clothes from time to time. Even with no car to worry about, you still need to call Uber if you need to get to a doctor’s office. And they aren’t free. Who knows if Social Security will still be there.

These words from Wendy Commick should make you think hard about the possibilities.

Wendy Connick Jan 13, 2018

As the baby boomers retire in large numbers, they’re finally getting the chance to see how well their retirement planning (or lack thereof) has paid off. Unfortunately, many boomers aren’t happy with the results: 68% wish they’d saved more, and only 24% are confident that they have enough money to last throughout their retirement, according to a study by the Insured Retirement Institute.

The good news is that you can learn from the average boomer’s mistakes. Here are some ways to make sure your savings will see you through retirement.

Setting your retirement savings goal

The best way to set a retirement savings goal is to come up with a list of all the expenses you’ll face during retirement, add 10% for unexpected expenses and fun stuff, and use the total for the basis of your retirement planning. For example, if you add up all your expected retirement expenses and reach a total of $3,000 per month, then add 10% ($300) and multiply the sum by 12 to get your minimum annual retirement income goal: $39,600.

Assuming you’ll be able to take 4% of your entire retirement savings account balance as a distribution each year, (though the “4% rule” has its problems), then you can turn your retirement income goal into a savings goal by dividing it by 4%. For example, divide the above goal of $39,600 by 0.04 to get a savings goal of $990,000.

If you don’t want to go through this process, or you’re unsure what your expenses will be in retirement, then there are number of shorthand ways to find your retirement savings goal that, though less precise, will at least get you in the ballpark.

Planning your contributions

Once you have a savings goal in mind, you can work backwards to figure out how much you need to contribute to reach that goal. The good news is that you don’t actually have to save $990,000 in order to accumulate that much money in your retirement savings accounts: Wisely investing the money you contribute will help you grow those funds by a significant percentage each year. The sooner you start contributing, the more time that money will have to grow.

You can use a savings calculator to figure out how much you’ll need to contribute to your retirement accounts each month in order to hit your savings goal. For example, let’s say your goal is to have $990,000 by the time you retire, you plan to retire 30 years from now, and you have nothing saved so far. Assuming you can earn an average of 8% per year on your investments, a savings calculator will tell you that you need to save $8,092 per year — approximately $674 per month — to hit your goal.

I can’t save that much!

If the contributions you’d need to make to reach your goal are way too high, you have a few options. The simplest option is to delay retirement by a few years. Returning to the above example, let’s say you decide to retire in 33 years instead of 30 years. Delaying retirement by just three years would reduce your annual contribution goal from $8,092 to $6,281, which works out to $523 in contributions per month. You could hang on to $151 more each month while still ending up with the same amount of money when you retire.

Another possibility is to reduce your savings goal by coming up with other sources of retirement income. For example, if you decide to get a part-time job during retirement and are sure you can make at least $1,000 per month at that job, then the amount of annual income you’ll need from your retirement savings accounts will drop from $39,600 to $27,600. That means your new retirement savings goal will be $690,000. If you’re retiring 30 years from today, you’ll need to contribute $5,640 per year — $470 per month — to hit your new goal.

Finally, you could boost your retirement savings contributions by finding more income today or reducing your current expenses. Increasing your income could mean getting a raise, lobbying for a promotion, switching to a higher-paid job, or supplementing your income with a part-time job or side gig. Reducing your expenses could mean making some short-term sacrifices, such as cutting back on entertainment expenses, to free up some more money.

One extremely helpful way to reduce expenses is to pay off any credit card debt you’re carrying. Getting rid of those monthly payments can save you a boatload in interest charges, freeing up that money for retirement savings.

Saving money is a huge challenge for the average American, but that means you can be above average just by spending a little time on retirement planning. And once you retire, unlike those unfortunate baby boomers, you’ll be confident that you have plenty of money to finance your retirement dreams.

A Time for Courage

My Comments: In past blog posts I’ve shared the words, and wisdom, of Scott Minerd. He’s one of the principal brains at Guggenheim Partners, a major player on the world stage when it comes to investing money. (BTW, this pic of Scott is from 12/21/2015)

Right now many of you are rightly worried by the fall in equity prices on Wall Street, if not across the planet. Don’t equate a crash on Wall Street with the American economy. What it means is there are strong feelings about the high valuations that we see in the DOW and the S&P500.

Is it time to bail out and wait for the bottom to appear? Probably not. But don’t take my word for it. Read below what Scott is saying and then sit back. From a strategic perspective, you need to decide how much of your overall portfolio is exposed to the markets and how much of it should be protected against severe downside movements. There are insurance policies available that make this possible and the price is reasonable.

By Scott Minerd, Chairman of Investments and Global CIO – 02/06/2018

In what otherwise might have been another quiet Monday with investors lulled to sleep by the low volatility world of the past year, I was surprised to be suddenly overwhelmed with a deluge of calls late in the day from clients and the media asking for an explanation of the collapse in equity prices. My answer in a word was simply “rates.”

The backup in bond yields has been significant, with the 10-year Treasury rising 23 basis points in the last month, and hitting a recent peak of 2.88 percent. The tax cut euphoria drove stocks up at an unsustainable pace, but concerns have been building about bond market supply congestion following the Treasury Department’s refunding announcement, and Friday’s employment report has increased speculation that the Fed may need to become more aggressive to head off potential inflationary concerns.

Contributing to inflation worries is impressive wage growth. Hourly earnings were up 0.3 percent in January and upwardly revised for December to 0.4 percent, supporting the concept of wage growth of 4 percent or more for 2018. These data are trending up even before we fully digest changes to the minimum wage and the effect of wage increases and bonuses related to the new tax plan. These are likely to give a lift to consumption, which will reinforce more labor demand, and thus drive unemployment lower.

Dare I say that some in the market are becoming concerned that the Federal Reserve may be falling behind the curve, especially as evidenced by the recent steepening in bond yields? This is also a possibility. The consensus for future rate hikes, was moving to four rate increases in 2018, and possibly more.

I think that the setback (the largest one-day point decline in history) is not over but we are approaching a bottom. This correction is a healthy development for the markets in the long run, and the equity bull market, while bloodied, is not broken. The lower bond yields will help but the curve steepening speaks more of flight to safety in times of market turmoil than concerns over the economy.

Ultimately, my previously held market views are intact. I still hold the opinion that the favorable economic fundamentals that are in place, where we are in the business cycle, the breadth of the market, and levels of current valuations are supportive of equities. Buying here will probably make investors happy campers later in the year, but the tug of war between stocks and bonds is just getting under way. This may be the big investment story for 2018.

History says the bull market is ending

My Comments: Paranoia is an elusive thing. Just because you’re paranoid, it doesn’t mean there’s no one out there intent on putting you down. It’s much the same with the stock market. Just because we’ve not had a market correction now for almost nine years, it doesn’t mean there is one just around the corner. Or does it?

I’m writing this in an attempt to justify my position that for the past three years, I’ve been warning clients and whomever will listen that a market correction of significance is ‘just around the corner’. Is it paranoia or is it real?

Personally, I hope it happens soon. That way we can get over it and move on for the next several years. I just want to be able to start the next upturn from a higher point than the depths of the next collapse. How about you?

If you want a way to participate in the inevitable upside and avoid the inevitable downside, reply to this post or send me an email. I have an answer for you.

(This comes from http://stansburychurchouse.com)

If history is any guide, the good times are about to end for the U.S. stock market.

It’s been one of the longest-running bull markets ever…

Over nearly nine years, or 105 months, the S&P 500 has returned 368 percent (including dividends).

That’s the second-longest bull market the U.S. has ever seen… just behind the nearly 9.5 year-long, or 113 months, bull market that started in 1990.

You can see the S&P 500’s past bull markets in the table below… it shows the date they began, their overall return and how long each lasted. On average since 1926, bull markets have lasted for 54 months, and resulted in returns of 160 percent.

After the 2008/2009 global financial crisis, interest rates around the world plummeted. In the U.S., the Federal Reserve cut interest rates from over 5 percent to zero in the course of just over a year.

Coupled with that, we saw an unprecedented surge of money printing as the Fed expanded its balance sheet (by creating money and buying assets) from a little over US$800 billion to over US$4.4 trillion today, along with a wholesale bailout of the banking system.

We also later have seen a “Trump rally” where investors expected President Donald Trump’s tax reform and infrastructure investment election promises to boost the economy.

But the gains can’t go on forever

Take a look at the following chart. It shows when and why each of the bull markets above eventually ended.

For example, in 1990, the U.S. market entered its longest-running bull market on the back of the Internet boom. The S&P 500 soared over 400 percent in nine years. But in March 2000, the market peaked – and went on to fall 49 percent over the next 2.5 years.

In 2002, the market soared back. It went up over 100 percent in five years. Then the global financial crisis hit in 2007, and the S&P 500 fell 57 percent over the next 17 months.

The bull market/bear market cycle keeps repeating… thanks to mean reversion. Markets (along with most other things in life) tend over time to reverse extreme movements and gravitate back to average.

It’s like a rubber band… stretch it and when you let go it returns to its original shape. So after a period of rising prices, securities tend to deliver average or poor returns. Likewise, market prices that decline too far, too fast, tend to rebound. That is mean reversion, and it works over short and long periods.

And mean reversion isn’t the only reason we think the U.S. bull market is winding down…

Overpriced equities

By many measures, U.S. stock market valuations are high.

One of the best ways of measuring market value is to use the cyclically-adjustedprice-to-earnings (CAPE) ratio. It’s a longer-term, inflation-adjusted measure that smooths out short-term earnings and cycle volatilities to give a more comprehensive, and accurate, measure of market value.

As the chart below shows, the CAPE for the S&P 500 is now at 33.6 times earnings. That’s higher than any time in history, except for the late ‘90s dotcom bubble. It’s even higher than the stock market bubble of the late 1920s.

High valuations don’t mean that share prices will fall. High valuation levels can always go higher, at least for a bit. Or they could stand still for a while. But mean reversion suggests that at some point, valuations will fall, one way or the other.

And as we showed you recently, the U.S. economy could also be about to see a slowdown in growth – which could also dampen market sentiment and hurt share prices.

It’s not just the U.S.

Now, this is all in the U.S. But we’re seeing a similar situation in global markets.

As we told you in November, the MSCI All Country World Index (which reflects the performance of global stock markets) has seen an unprecedented streak of gains over the past year. And it’s up 8.4 percent since we last wrote about it. As we said earlier, nothing goes up forever.

Plus, if the world’s biggest market (at around half of the global market cap) is in trouble, the rest of the world could be too.

So what should you do?

Look to diversify your portfolio. Regular readers will know that we’re big fans of diversification.

We’ve written before about the importance of not just investing in different sectors and asset classes… but in different markets and countries too. That’s because spreading a portfolio around the world reduces risk. After all, gains in one market can offset losses in another.

And while the gains in some markets are nearing an end, they’re just getting started in markets like India, Bangladesh and Vietnam. These are three of the fastest-growing markets in the world.
So do yourself a favour and diversify your portfolio.

Read the original article on Stansberry Churchouse Research. This is a guest post by Stansberry Churchouse Research, an independent investment research company based in Singapore and Hong Kong that delivers investment insight on Asia and around the world. Click here to sign up to receive the Asia Wealth Investment Daily in your inbox every day, for free. Copyright 2018. Follow Stansberry Churchouse Research on Twitter.