Importance of Asset Allocation

Strategic Wealth

Since the pandemics beginning there has been an increased demand for commodities. With prices of real estate, cars, materials, and more skyrocketing for such a long duration, it leaves many of us wondering what’s in store for the future. Independent financial advisor Mike Reeves of Strategic Wealth Designers joined us on the newscast to discuss whether we are in an asset bubble and what it could mean for our economy?

“An asset bubble occurs when stocks, bonds, property, and commodities drastically rise in price very quickly,” Reeves says. “The risk of stimulus money and the Fed bond buying programs is that it inflates the price of assets too high. It is concerning because what happens when supply meets demand and that bubble pops? You have a bear market and potential recession. This result can be very damaging to your portfolio and lifestyle unless you’re prepared.”

No two asset bubbles are identical. The 2008 recession was building up years prior to its grand entrance. This was largely due to a housing bubble backed by low interest rates and relaxed lending standards. It is important to look at history and its patterns and how it could repeat itself while knowing that they don’t always completely mirror each other.

“Preparing for a bear market is all about taking a blended approach where some money is completely safe, some at risk, and some liquid,” Reeves says. “Investments need to be arranged in a manner where if the market goes down and stays down for the five to ten years, you will be able to withdraw money but still be able to protect your retirement. You do not want to be so exposed to the stock market that you are selling your investments down to pay the bills. People believe that bonds can protect them but because interest rates are so low, they do not offer the same protection as they used to and are not considered a safety net in the portfolio.”

Asset bubbles can be seen in many instances throughout history and often lead to downturns in the economy. To see additional stories surrounding business and economic news for the Indianapolis area, visit https://cbs4indy.com/news/strategic-wealth/ and if you have a question for Mike send an email to info@swdgroup.com

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