When the stock market produces double digit returns over multiple years in a row, investors and retirement savers naturally begin to get nervous and anticipate some sort of inevitable financial bubble.

This fear often stems from two things, from living and investing through recent historic market crashes such as the dot-com bubble and the great financial crisis, as well as the mere thought about how the recent and exuberant growth of your financial nest egg can sharply and suddenly be given back – and ultimately the thought of how that hit to your investments might impact your livelihood in retirement.

In this episode, we take a historical look at financial bubbles and what a “bubble” entails.

More specifically, we discuss:

• Insights from Howard Marks’ memo: “On Bubble Watch” and defining a financial “bubble”
• What causes financial or asset bubbles?
• How bubbles and market crashes can negatively affect investor behavior
• Media headlines and stock market bubbles
• Understanding the cycle of investment fads: My “Asset Bubble Circular Calculation”
• How an investment plan can guide you through market turmoil

Resources:

• Access Episode Show Notes and Sign Up for the Retired·ish Newsletter
• Ask Cameron A Question!
• “On Bubble Watch” – Howard Marks https://www.oaktreecapital.com/insights/memo/on-bubble-watch

Key moments:

(03:36) Exploring Stock Market Bubbles and What They Really Are

(04:15) What Actually Causes Stock Market & Other Asset "Bubbles"

(09:55) Bubbles Can Cause Negative Changes To Your Investing Behaviors

(12:49) The Impact of Media Headlines

(15:17) "The Asset Bubble Circular Calculation"