Everything's Expensive and the Market is Going to Crash

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Jason’s Random Words

By just about any metric you want to use, stocks are expensive. And by many of the measures of the economy, there are reasons for worry. The labor market has tightened up. Inflation is ramping higher. The housing market — more than 15% of the U.S. economy — is a mess. Plenty of people both supporters and opponents — believe that the actions the Trump administration is taking will have negative impacts on consumers and the economy in the near term.

There are even some macro measures that point towards a potential recession and market crash coming in 2025. My own proprietary measure of the likelihood of recession — the JTRC* gauge — pegs it at 85% probability. That’s the highest my measure has rated the likelihood in years.

The point is there are plenty of good reasons that investors may want to consider moving some money to the sidelines. That’s doubly the case when you look at the market’s history, and note that it’s exceedingly unlikely that we see another strong year for stocks after the result of the past two years.

Remembering why we own stocks

As many of you know, my own investing process and framework has evolved over the past few years, including more cash and owning bonds (via ETFs) for the first time in meaningful amounts.

I bring this up again because these are the assets we should own to help us navigate and profit through periods of market uncertainty, acting as ballast in our portfolios and near-term risk-deflectors. This is particularly important for anyone who will need actual money out of their portfolios in the near-term. But in my case, the psychological edge of holding bonds and more cash than I used to serves another purpose: Keeping me fully invested in stocks with the part of my portfolio that’s dedicated to stocks.

This matters more than you may realize. I was recently reading a post from Ben Carlson’s A Wealth of Common Sense discussing market timing, and something that he wrote resonated with me deeply:

The key here is stocks are long-term investments, and essentially nobody has an edge that allows them to successfully time the market’s highs and lows.

Moreover, we don’t have to get it perfect. While there certainly have been periods of bad returns over multiple years — it took the market well over a decade from the 2000 peak to return to sustained profitable levels — but by and large, simply holding has worked out. Some recent examples:

The worst time to invest before the Global Financial Crisis was October 9, 2007. Investors in an S&P 500 index fund would see their investments fall more than 50% over the next 18 months and take more than a half-decade to get back to breakeven. But those same investments, if held through today, would be up more than 435%, turning every $1,000 invested into over $5,300 today.

Moreover, an investor who bought on that day, and then diligently dollar cost averaged into the market on a regular basis thereafter would have benefitted from the lows, while also doing just fine from the all-time highs as well.

Doing the hard thing that works

Nobody knows what happens next with the economy, the stock market, or all of the other macro stuff. Those things are why we own cash and safe stuff like bond funds and treasuries. So we can protect our near-term needs and hold some dry powder in case we do see stocks selloff.

But when it comes to our stock holdings, we have to get back to first principles, with stocks serving as the safest, most accessible way for most of us to create wealth for ourselves and our family over the long term. Instead of trying to time the market, which is essentially impossible, we have to do something that’s equally hard, but actually works: Just keep holding. When your holding period is measured in decades, not years, what happens this year or next is irrelevant. Just because stocks are expensive and it’s hard to find something you want to buy doesn’t mean you need to sell.

You can do it,

Jason

*The JTRC is “Jason thinks recession is coming” and this gauge is always above a 50% probability of recession.**

**It’s not an actual proprietary measure. It’s just my natural fear of a recession every single year.