Images of SpaceX rockets are displayed on screens in New York City's Times Square after the launch of SpaceX's initial public offering on June 12.ANGELA WEISS/AFP/Getty Images
Investing in stocks is as essential as it ever has been to building long-term wealth, but why wait?
There’s a get-rich-now feel to investing in mid-2026, where risky to foolish speculation is endlessly rewarded and proven old-school rules cost you money. It’s all reminiscent of real estate in early 2022, when prices reached levels that now seem ludicrous.
One thing you learn in decades of investing is that stocks will be stocks, which means it’s not always possible to rationalize what’s happening. But let’s try.
Corporate profits have held up pretty well despite global challenges, commodity prices are up and money is pouring into stocks – like SpaceX – that are seen as a play on AI. Both the Canadian and U.S. stock markets have produced average annual total returns around 24 per cent over the three years to May 31, which is more or less triple the normal long-term rate of return.
Sometimes, the stock market lives in the clouds. Back on earth these days, the big questions on the Canadian economy are (a) whether it’s in recession and (b) how big a problem inflation will get this year.
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Stocks may have room to zoom, so don’t abandon ship if you’re a long-term investor. Also, anyone who makes automatic biweekly or monthly investments should stay with the program. Who should not: Investors who think there’s easy money in trading stocks.
Not much happening in the stock markets these days supports this word of caution. SpaceX shares were started trading last week at US$135 and reached US$170 early Monday. Heads are exploding because SpaceX hasn’t immediately been added to the S&P 500, which means index investors are “missing out.”
Fear of missing out defines overheated markets, including real estate back in 2021-22. Home prices back then reflected a level of financial derangement that exceeds anything in my own experience.
Just for fun, let’s look at some market numbers issued by the Canadian Real Estate Association for February, 2022:
- The MLS Home Price Index was up a record 3.5 per cent month-over-month and a record 29.2 per cent year-over-year.
- The number of newly listed properties was up 23.7 per cent month-over-month.
- There was 1.6 months of housing inventory nationally, tied for the lowest level ever recorded; this is the length of time needed to sell all homes on sale at the current pace of activity.
The actual average resale home price in February, 2022, was $816,720, but several markets beyond just Toronto and Vancouver were above $1-million. Few cities are above the million-dollar mark today, and the national average is almost 15-per-cent lower at $695,412.
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Housing looked fantastic as an investment in 2021 and early 2022. Parents dipped into their savings to help adult kids get into the market, and trend-jumping entrepreneurs devised ways to help people without the financial resources to buy homes nevertheless participate in residential real estate.
Even among everyday people, the phrase investment property came up an awful lot in the early 2020s. You either had a second home, or thought about how to get one.
What happened next for real estate was that the number of people willing to pay inflated prices for homes plunged, while the cost of financing a purchase with a mortgage surged. As ever, the people hit hardest by this shift were the ones who bought in at the peak.
There are signs today of recovery in the hard-hit Toronto and Vancouver housing markets, and more affordable cities are in reasonable shape right now. But there’s zero excitement about real estate today, while the opposite is true of investing.
You see this in the hype over SpaceX and AI stocks and in the way the investing industry is exploiting the long bull market by gamifying stock and options trading into something like gambling. The next frontier in speculative finance is prediction market trading, where you bet on the outcome of events such as elections, wars, weather patterns and more.
The narrative is always the same when people are over-excited about investing: Fortune favours the bold. Until the bold get rolled, that is. It never fails.
Rob Carrick is a personal finance expert and former Globe and Mail staff columnist.