In what to invest when markets are overheated?

From a financial point of view, we are living in interesting times. Markets are flooded with cheap money, production levels are relatively low and stock market indicators do not seem to stop growing. Right now, markets are signaling that a strong correction is coming and investors are increasingly concerned about how they could protect themselves from it.

In what to invest when markets are overheated? If we would do thorough research, we would probably find that in the last year the interest for investments has increased significantly. It would not be difficult to explain why. For example, remote work allowed us more time to research, document, and learn, isolation allowed us to increase our savings, uncertainty made us more concerned about the future, the policy of cheap money made loans very affordable, etc.

Last year, as the pandemic set in, we witnessed a market crash that was followed by a consistent period of growth in all investment fields, in which most assets reached unprecedented levels. Since the beginning of this year, we have frequently heard that a crypto-currency or stock has reached a record value. In fact, the investment frenzy is so loud that negative news, such as crashing mutual funds (Archegos Capital, Greensill Capital, etc.), the huge amount of money on the market, and the inevitable rise in the inflation rate has, for the time being, had a minimal effect on the main indicators of on the markets.

Investors know that the growth period is coming to an end

Obviously, more and more investors are realizing that this growth cannot continue indefinitely and that, given the unprecedented levels they have reached; there will be a strong correction in the markets. For the small investor, a question arises: How can he protect his savings from the shock that will follow in the coming months? Invest in gold, stocks, real estate, cryptocurrencies? The answer is complicated.

In the short term, all these investments can bring the illusion of significant gains. Until the correction of the markets, we can expect many assets to continue to appreciate and, for experienced investors, the time would be enough for advantageous exits. In the medium term, the market will crash and we could miss the right time to exit and this would nullify the potential gains and reduce the value of the portfolio below the value of the initial investment.


Investing in gold could bring significant returns after the correction begins. Usually, a market crash is followed by a search for stable assets and therefore an increase of gold price occurs. So we expect to see an increase in the demand for gold. However, gold is an asset with relatively high stability and potential gains are relatively low.


Shares and stock markets have appreciated so much in the last year that the values reached historical records. The expected correction makes investments into these securities extremely risky. For some stocks, the upward trend may continue for some time, but the risk of substantial financial losses exists.

Real estate

There are several major problems with investing in real estate. Most real estate properties are already overvalued and credit-based investments are quite risky. Loans are now cheap and this investment is tempting, but in 30 years interest rates will fluctuate and the earning potential of the investment will decrease. In addition to this, we do not know exactly how society will evolve in the coming years, there is a chance that we will see a decrease in demand for rental housing. The negative increase in population growth has intensified in the last two years and it seems that we will reach a population of at most 16 million inhabitants faster than we thought (not: in Romania).

Also, a generalization of remote work could generate reverse migration trends, from large cities to small urban areas. Today the impact of these two factors is low, but in 5-10 years we can expect it to put pressure on rental prices and reduce the return on investment in real estate.

In what to invest when markets are overheated?

To avoid mental pressure and reduce unnecessary risks we would have another recommendation. A correction of stock market indicators follows and the best solution is to keep the savings in 2-3 strong currencies. It would be preferable for currencies to be issued in countries with low inflation rates. Today, inflation is a global phenomenon and this diversification, in 2-3 strong currencies, would reduce the risks of depreciation. After securing savings in deposits, we recommend waiting for the correction. Ideally, investors should wait for stock market indicators to reach historic lows. That is when you should buy well-known stocks and ETFs that had high-yield in the past. With investments made at the right time, investors could make advantageous exits in no more than two or three years.

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