Beware of Risk Creep

January 9, 2015

Syverson Strege and Company | Sherpa Investment Managem

The investment markets, particularly in the US, continue their upward trek.  In fact, the S&P 500 has brought positive returns the last six years!

In situations like this it is easy to become lulled into complacency as an investor, willing to take more risk since the market seems to bring nothing but good results.  However, this is the exact time that we should be cautious.  Year after year of strong returns can generate overvaluations, like we’re seeing today.

On the one hand, the markets “feel” safe.  On the other, we have stocks with relatively high prices according to the Shiller P/E (or “CAPE) ratio. 

We should be extra cautious, ensuring we’re not taking on more risk than we can stomach. 

This graphic from New York Times blogger Carl Richards sums it up nicely: