Photo of Eric R. Ebbert, CFP®, MBA, CEO Eric R. Ebbert, CFP®, MBA, CEO May 03, 2021

If you spend enough time in investment circles or talking finances, eventually someone will speculate that an investment bubble is looming on the horizon. 

An investment bubble is a normal part of the economic cycle. It is a term that refers to rapid escalation of market value followed by a sudden decrease of value. Picture someone blowing a bubble to the point that it bursts, and you get the idea.

When it looks like there is a bubble forming, both bullish and bearish investors need to adjust their strategies to get ready for some market movement.

As we continue moving through 2021, investors entering the month of May might be wondering if there is an investment bubble looming in the market.

So, is there an investment bubble getting ready to burst?

It is not uncommon for investment bubbles to form as a byproduct of stimulative policies following a recession. As you are most likely aware, the market took a hit during the initial months of the pandemic. However, it has slowly recovered and been charting the path of growth again ever since then. 

Still, many people and businesses have been struggling to get by during the pandemic, so the government issued stimulus payments to help. As a result, many people used part of their stimulus payments to invest in stocks. This sudden inflow of cash can stimulate growth in certain sectors or even across the entire market that could blow up into an investment bubble.

Investors can speculate all they want on whether a bubble is getting ready to burst, but in reality a bubble is very difficult to pinpoint. There are some signals to keep an eye on, like new easy money entering the market, but even these do not always mean there will be a bubble. 

So, what do you do? You work with a financial planner to help set a plan in place to prepare for both a growing market and one in recession after a bubble burst.

Talk to a ProVise CFP® professional about the investment bubble

At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.

Are you ready to talk to a professional about whether we are experiencing an investment bubble? Contact ProVise today to schedule a complimentary consultation.