Is The Stock Market Overvalued? Yes. Here’s How You Can Prepare
Posted onThere’s all sorts of market sayings that investors turn to when they want to ignore facts. “This time it’s different” or “This is the new normal.” But, here’s another saying to consider: “Be fearful when others are greedy and greedy when others are fearful.”
The U.S. stock market has bounced back from its early year decline and is posting gains of about 13% since January. The S&P 500 has touched a new record high, but valuations are high—very high. The 12-month forward price-to-earnings ratio for the S&P 500 stands at 26—that’s bubble territory, and far above the 20-year average of 16.
For some, today’s AI-driven euphoria on Wall Street is reminiscent of the dot.com market boom and bust in 2000-2002.
Looking Back: A 78% Stock Market Crash
The dot.com U.S. stock market bubble peaked in March 2000. From there, the NASDAQ composite index saw tech stocks fall 78% into the October 2002 low. Now that 78% decline is a scary number, but here’s another sobering statistic. It took 15 years for the NASDAQ to recover to its peak value before the crash. Do you have 15 years to wait before you get 3/4 of your portfolio back?
What Does the Buffett Indicator Say Now?
Here’s another stock market measure to consider. Warren Buffett offered a simple guide to measure the state of the U.S. stock market. Known today as the Buffett Indicator, it measures the total U.S. stock market capitalization against the country’s GDP. Buffett once said: “If that percentage relationship falls to the 70% or 80% area, buying stocks is likely to work very well for you. If that approaches 200% as it did in 1999 and part of 2000—you are playing with fire.”
Where’s the Buffett Indicator today? A whopping 213%–well above dot.com levels.
Do You Want To Play Defense and Protect Your Money?
If you are wondering if this is a bubble, the sad truth is that we only know after the fact—after the bubble has popped. Market history does show that bubbles or periods of extreme stock market overvaluation are followed by sharp declines or a crash.
For investors the message is clear. A well-diversified portfolio remains one of the best defenses for an investor and can provide protection against sudden stock price downturns—when it can be difficult to get out of the market. If you are concerned that you might be overexposed to risky assets like stocks, here are a defensive game plan to consider.
Legendary Investors Are Selling Stocks, Buying Precious Metals
Multimillionaire investor and Wall Street legend Jim Roger recently sold all his U.S. stocks, warning “he’s seen this party before.” Roger’s estimated net worth stands at about $300 million and he retired at the age of 37 after astounding success in the fund he co-founded, the Quantum Fund, which generated growth of over 4,200% in its first decade.
When Rogers recently shared that he had sold his U.S. stocks, he also revealed where he is turning to for wealth preservation: precious metals. “I own a lot of gold and silver,” Rogers said.
Other billionaire investors are sharing the same advice. Ray Dalio, founder of the largest hedge fund in the world, Bridgewater Associations told CNBC that people “don’t have, typically an adequate amount of gold in their portfolio.”
“When bad times come, gold is a very effective diversifier,” Dalio explained.
Increase Your Allocation to Precious Metals Now
If you are concerned about the potential for a stock market drop, consider selling a portion of your allocation to stocks. If you take a look, your stock allocations could be stretched and you could be taking on more risk that you even realize.
Invest those proceeds into gold and silver. Physical precious metals are the best performing asset class of 2025 and they are still climbing. Here’s another old Wall Street saying to consider: “Stocks take the stairs up, and the escalator down.” The best time to play defense and buy more wealth protection with gold and silver is before the stock market begins its downward spiral.
The best time to play defense is today.
