Large company US stocks, as measured by the S&P500, have dominated in both absolute and risk-adjusted terms. They are soaring. It’s the Roaring 20s again!!

The stratospheric rise of these stocks continues in 2024. Their 15% year-to-date return is 32% annualized. Inflation fears are fueling investments in US stocks, precious metals and commodities. Every day that the stock market reaches new highs is a day when the likelihood of a burst increases.

As evidenced by target date fund performance, high risk portfolios are being rewarded with high returns this year.  Choose your risk and investment horizon to evaluate your own YTD portfolio performance.

Diversification “has not worked” since holding anything other than large cap US stocks has detracted from performance. Diversification smooths out the ride, with higher lows and lower highs.
 

The new Roaring 20s

The 2022 setback may have been a warning.  According to this article.

 While the crash of 1929 curtailed economic activity, its impact faded within a few months, and by the fall of 1930 economic recovery appeared imminent. Then, problems in another portion of the financial system turned what may have been a short, sharp recession into our nation’s longest, deepest depression.

From the stock market crash of 1929, economists – including the leaders of the Federal Reserve – learned at least two lessons

First, central banks – like the Federal Reserve – should be careful when acting in response to equity markets. Detecting and deflating financial bubbles is difficult. Using monetary policy to restrain investors’ exuberance may have broad, unintended, and undesirable consequences.

Second, when stock market crashes occur, their damage can be contained by following the playbook developed by the Federal Reserve Bank of New York in the fall of 1929.

These lessons should be taken to heart. The 2020s are only half over, but similarities to the 1920s are emerging as shown in the following. Some say the next crash could be worse than the Crash of 1929.
 

Baby Boomer warning

My recent article entitled Revenge of the Baby Boomers went viral on Seeking Alpha with 70,000 readers, so many of you know that I am very concerned for my fellow boomers. If you are a boomer, be worried -- at least for now.

Unlike the 1920s, the 2020s has 75 million baby boomers who are in the “Retirement Risk Zone” when investment losses can ruin the rest of life. Boomers cannot afford "a Great Depression of the 2020s." They simply won't recover. Their loss will also be their heirs’ loss, and society's loss since support programs will be stressed to their limits. They need to move to safety now, until they are beyond the Risk Zone (in the 2030s).

Most baby boomers are not aware of the risk they are facing, especially those who have defaulted their investment decision in their 401(k) plan to their employer. Baby boomers are not protected in most target date funds (the most popular default investment), so they need to know their risk exposure, and move out if they are not protected.

Baby boomers will get angry -- and shocked -- if they are harmed by a stock market crash. Employers should fear their anger.

Conclusion

Euphoria characterized the first Roaring 20s. Lots of fun. Few thought it would come to an end, and no one foresaw the Great Depression. 100 years later, some are sounding alarms, but most are seeking the next new market high. Be careful.

If something cannot go on forever, it will end. This time the "end" stands to devastate a very large group of nice older people.

More By This Author:

Disappointing GAO Report On Target Date Funds Misses Opportunity To Improve Risk Management
Coming Soon: Revenge Of The Baby Boomers
The 2022 Stock Market Crash