I hear some analysts say the S&P 500 is "overpriced" and others say it is "undervalued" and each believes they right. What to do?
You decide where the S&P will be in 10 years.
This is a 3-month chart of the S&P500 going back to 1933. Why a 3-month chart? Less noise. Fits the screen nicely.
The year is 2030. The top of the channel is at around 12000. The mid at 5700. And the bottom at 2800.
If the price stays in this channel, and you buy the S&P at 3400, then your ROI in 10 years should be +250% (top), +65% (mid) and -20% (bottom) depending on how things play out. Inflation and interest rates affect real return so you need to account for them.
For example, if inflation is at 3%, the mid ROI is +3.5%, and the bottom ROI is -5%. In other words in 10 years, you may see your purchasing power increase by 35% or decline by 50%. If you believe in 3% inflation and the worst outcome for the S&P 500 over the next 10 years, then the S&P 500 is not a good place to invest. This is the bear scenario.
If interest rates go above 3%, then more investors may park their money in bank accounts and not risk investing in the S&P 500. If interest rates go beyond 5%, a lot more investors will park their money in bank accounts and the S&P 500 will suffer.
If you're S&P 500 bull, you don't have much to worry about.
I've reduced the analysis to 3 scenarios, and 2 variables (inflation and interest rates). You decide.
You decide where the S&P will be in 10 years.
This is a 3-month chart of the S&P500 going back to 1933. Why a 3-month chart? Less noise. Fits the screen nicely.
The year is 2030. The top of the channel is at around 12000. The mid at 5700. And the bottom at 2800.
If the price stays in this channel, and you buy the S&P at 3400, then your ROI in 10 years should be +250% (top), +65% (mid) and -20% (bottom) depending on how things play out. Inflation and interest rates affect real return so you need to account for them.
For example, if inflation is at 3%, the mid ROI is +3.5%, and the bottom ROI is -5%. In other words in 10 years, you may see your purchasing power increase by 35% or decline by 50%. If you believe in 3% inflation and the worst outcome for the S&P 500 over the next 10 years, then the S&P 500 is not a good place to invest. This is the bear scenario.
If interest rates go above 3%, then more investors may park their money in bank accounts and not risk investing in the S&P 500. If interest rates go beyond 5%, a lot more investors will park their money in bank accounts and the S&P 500 will suffer.
If you're S&P 500 bull, you don't have much to worry about.
I've reduced the analysis to 3 scenarios, and 2 variables (inflation and interest rates). You decide.