Client Q’s: Is the stock market in a bubble?

By Mike Ross at Evergreen Advice

When things are going well, it’s both natural and sensible to ask whether this might be as good as it gets. Many investors are posing that very question after seeing the impressive run of US technology stocks in recent years, drawing parallels with the exuberance — and eventual crash — of the early 2000s.

Financial blogger Ben Carlson outlines various options if you have if you think US tech (AI) is in a bubble including sell all your shares. I caution against an all-or-nothing strategy. I’ve been working in markets since 2012 and for this entire period, there has been persistent commentary suggesting that technology stocks are overvalued. Relying, and acting, on such views, would have resulted in missing out on substantial investment returns over the period.

 Our investment strategy remains diversification: we include European, Asian, small cap, and Australian shares to limit dependence on US and technology stocks.

What should I do with my cash as interest rates drop?

Low interest rates, especially on term deposit, have also been a major talking point. When returns were 6%, term deposits had strong appeal, but with rates falling to an average rate of around 3.5%, returns barely outpace inflation after tax, making them far less attractive.

There are still some reasonable rates available on term deposits if you shop around and negotiate. Although term deposit rates follow the OCR, which was recently cut to 2.5% by the Reserve Bank, banks don’t always adjust them evenly. Some offer premium rates to attract deposits, while others have reduced rates more sharply. For example, Kiwibank's Online Call account, which previously paid higher interest than others, now offers just 1.5%.

We’ve updated our article to show the latest rates currently offered by major banks.
An alternative option to term deposits is to invest in bonds or shares. While this is a higher-risk investment, it can be worthwhile if your investment horizon isn’t too short. If you’d like to explore how these options might fit your situation, feel free to get in touch.