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Today's Historic Bubble and the One Guarantee

Recently, you may have seen that there have been wide divergences in opinion about whether we're in the most spectacular bubble ever seen, or at a pretty decent time and place to invest new funds.

Such is always the case.

This time around, Jeremy Grantham, the well-known skeptic who has called a few bear markets correctly in his career, has written to his clients that we are in the middle of a bubble of historic proportions. "Everything is in bubble territory," he says. "Everything. The bursting of this bubble will be across all countries and all assets."

Yikes.

Seriously, yikes
Bubbles are a scary thing. The mere use of the term portends losses of 50%, 60% -- even 80% for broad asset classes. Something as prominent as the Nasdaq 100, led by stalwarts such as Adobe Systems (Nasdaq: ADBE  ) , Amgen (Nasdaq: AMGN  ) , Bed Bath & Beyond (Nasdaq: BBBY  ) , Comcast (Nasdaq: CMCSA  ) , and Intuit (Nasdaq: INTU  ) , managed to lose 80% of its value between 2000 and 2003. Today, joining our own market as the most popular place to look for a bubble are the international markets, with indexes captured by exchange-traded funds such as iShares MSCI Pacific ex-Japan (AMEX: EPP  ) or iShares MSCI South Korea (AMEX: EWY  ) getting the most attention.

Meanwhile, Warren Buffett, long-term investor extraordinaire and occasional soothsayer about overpriced markets himself, has been very recently quoted as saying that today's prices, while not cheap, are nevertheless acceptable.

Who's right? And is it necessary to know who's right before getting started investing?

Always trust the Australians
On this point, I'll defer to Australian personal finance writer Noel Whittaker, who sums up the market with a great truism: "Life is full of uncertainties. Future investment earnings and interest and inflation rates are not known to anybody. However, I can guarantee you one thing ... those who put an investment program in place will have a lot more money when they come to retire than those who never get around to it."

There are always extremely well-informed investors with solid track records who state that now is not the time to invest. And it may not be. It certainly isn't the moment to put all your money into one limited asset class -- it never is. Whether today's mispriced asset class turns out to be international stocks, domestic small-cap stocks, real estate, junk bonds, gold, baseball cards, or oil futures can be guaranteed by no one. But many will have opinions.

Foolish advice
The key to a healthy and happy retirement is to have a savings and investment plan, start as early as possible with it, allocate savings into a diversified portfolio, and have the discipline to keep it up over as many decades as you have available.

The usual carrot -- and it's a great one -- to get investors to start early with their savings, and to remain disciplined in adding to their investments, is to show the spectacular returns available through investments' compound returns. This page here should convince you.

If you're interested in learning more about how asset allocation prevent suffering from burst bubbles, how keeping the costs of a lifetime of investing at the minimum radically alters your retirement, and how adding small bits of judiciously managed high-potential-rewards stocks to your portfolio can keep you pointed toward a fabulous retirement, take a 30-day, no-risk, free trial of Robert Brokamp's Rule Your Retirement service. We've had great success in helping educate our readers about the rewards of a lifetime of saving, planning, and investing. That's our one guarantee.

This article was first published May 22, 2007, and has been updated.

Bill Barker does not own shares of any company mentioned in this article. Bed Bath & Beyond is a Motley Fool Inside Value and Stock Advisor pick. The Motley Fool has a disclosure policy.


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