Business & Investment

Do you want to buy Bitcoin? bonds? High-tech stock? Impossible!I see a market bubble

First of all, Happy New Year 2021 for all UK investors. But looking back at 2020, there are several signs of an almost universal market bubble. Investor sentiment seems to be dominated by universally bullish and cheerful “group thinking.” Ultra-low interest rates and extreme market volatility have led millions of novice speculators to trade financial assets (I call this group the “Robin Hood Herd”). The enthusiast is also energized by workers who have more time working from home. In the words of the deceased great prince, we all have parties like 1999. But I remember well what happened in 2000-03 when that particular market bubble burst brilliantly.

Market Bubble # 1: Bonds

In essence, bonds are a very simple investment. They are debt securities. An IOU from an organization or government that pays interest (coupons) and returns capital (principal) at maturity. Globally, the bond market is tens of trillions of dollars ahead of the equity market. However, almost all bond markets, especially those in the United States and the United Kingdom, have enjoyed a bull market for 35 years since the mid-1980s. Is this generation of bubbles sure to burst someday?

Bond prices skyrocketed and annual yields collapsed as interest rates fell to previously unimaginably low levels. Around the world, the yields of top-notch bonds are negligible or even negative. For at least 50 years, financial advisors have recommended splitting a 60/40 portfolio between equities and fixed income. Unfortunately, soaring bond prices, low yields and high volatility have made it difficult to adequately protect our portfolio from the risk of loss. Therefore, my family’s portfolio is not exposed to this market bubble today.

Market Mania # 2: Bitcoin

As a former mathematician with over 40 years of computing usage, I understand the principles behind cryptocurrencies. But despite being an old nerd, the enthusiastic enthusiasm of “Bitcoin Brothers” scares me. In the last Bitcoin boom, BTC prices peaked at nearly $ 20,000 in mid-December 2017. When this market bubble burst, Bitcoin burst to about $ 3,250 a year later, crashing more than four-fifths (83.8%) in 12 months.

Bitcoin as I write Trade for about $ 29,400 — Approximately 50% above the 2017 peak and just $ 300 below the record high. There are nearly 19 million Bitcoins in circulation, and the market value of the original cryptocurrency is over $ 540 billion. It’s more than $ 5 trillion built on faith and isn’t fixed by underlying hard assets, intrinsic values, or fundamentals. For me, Bitcoin is one of the huge market bubbles waiting to burst. When that happens, I think the crash will happen again, as in 2018.

In summary, the world is full of record low liquidity and retail speculation. Bubbling in the market bubble today. We also see a big bubble hosting US tech megacaps, electric car makers, new issues and lists, and other high-priced, low-yielding assets. Therefore, in 2021, we will mitigate the risk of our family portfolio by breaking out of the bubble and shifting capital to cheaper, higher yields. FTSE 100 stock.

In my family portfolio, I want to add affordable stocks to a well-run, quality business. Ideally, you are looking for a stock with a low price-earnings ratio and a high rate of return. Similarly, I’m looking for high-yielding stocks by using dividends to generate passive income and increase long-term returns. With the FTSE 100 falling 14.3% in 2020, there is no shortage of attractive Footsie stocks today. That’s why cheap megacap stocks will be my number one choice for excellent returns this year.

The views expressed about the companies mentioned in this article are those of the author and may differ from the official recommendations made by subscription services such as Share Advisor, Hidden Winners, and Pro. Here at The Motley Fool, by considering different insights, Better investors than us.

Do you want to buy Bitcoin? bonds? High-tech stock? Impossible!I see a market bubble Do you want to buy Bitcoin? bonds? High-tech stock? Impossible!I see a market bubble

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