New money coming into the market means investors who have been holding cash investments (CDs, bonds, and so on) are jumping into equities.
Individually, this may be a good decision, depending on where investors place their money.
Better Stock Returns
Unfortunately, what often happens is inexperienced investors watch a bull market run and want to get in on the better returns the stock market offers.They may not choose their investments wisely and push the prices of hot stocks even higher. Because they are inexperienced, they buy stocks they hear about on television or from friends.
Rather than do their own research, money pours into the market and pushes up certain stocks beyond reasonable expectations.
If you have been a stock investor for at least 10 years, this scenario may sound like the tech bubble of the late 1990s.
Stock Market Bubble
You are exactly right. Huge amounts of cash poured into the market creating a demand for something to buy.During that period, it was any stock that had to do with the Internet.
Like any market where there are more buyers than sellers, prices shot up until professional investors began pulling their money out of the market and values crashed.
This doesn’t mean you should stay out of a market where there is lots of enthusiasm. However, be careful about what stocks you buy and even more careful about what you pay for them.
Don’t rely on the market to keep its enthusiasm forever.
