‘Playing with fire’: This Warren Buffett indicator is flashing bright red — signals even more danger for US investors than 1999 bubble. Time to sell?

The Buffett Indicator measures the total U.S. stock market capitalization against the country’s GDP — essentially gaging if there’s a potential bubble, akin to the 1999 dot-com bubble that, once it burst, cost investors around 5 trillion total. Buffett once called the indicator “probably the best single measure of where valuations stand at any given moment.”

In a 2001 reflection on the dot-com bust, he offered a simple guide: “If the percentage relationship falls to the 70% or 80% area, buying stocks is likely to work very well for you. If the ratio approaches 200% — as it did in 1999 and a part of 2000 — you are playing with fire.”

Today, the Buffett Indicator sits at a whopping 213%, topping dot-com bubble levels.

It may help explain why Buffett’s appetite for U.S. equities has cooled. Berkshire Hathaway has been a net seller of equities for 11 straight quarters and, as of June 30, was sitting on a massive $344 billion in cash.

The blunt reality is that stock market gains have outpaced America’s economic growth by a wide margin. And while Buffett admits the ratio “has certain limitations,” many agree U.S. stocks look stretched.

According to a recent Bank of America survey of fund managers, 91% believe U.S. stocks are overvalued — the highest reading in data going back to 2001.

Against this backdrop, some investors are bracing for what comes next. Legendary investor Jim Rogers says he’s sold all his U.S. stocks recently, warning he’s “seen this party before.”

If you’re concerned about where markets might head, here are three potential ports in the storm.

A ‘very effective diversifier’ for bad times

When Rogers revealed he had sold his U.S. stocks, he also shared where he’s turning for safety — precious metals.

“I own a lot of gold and silver,” he admitted.

Gold and silver have long served as classic hedges against inflation. Unlike fiat currency, precious metals can’t be created at will by central banks. And because their value isn’t tied to any single country, currency, or economy, investors often turn to them during periods of market turbulence and geopolitical uncertainty.

Rogers isn’t alone. Ray Dalio, founder of the world’s largest hedge fund, Bridgewater Associates, told CNBC earlier this year that people “don’t have, typically, an adequate amount of gold in their portfolio,” adding “When bad times come, gold is a very effective diversifier.”

One way to invest in gold that also provides significant tax advantages is to open a gold IRA with the help of Priority Gold.

Gold IRAs allow investors to hold physical gold or gold-related assets within a retirement account, thereby combining the tax advantages of an IRA with the protective benefits of investing in gold, making it an option for those looking to help shield their retirement funds against economic uncertainties.

When you make a qualifying purchase with Priority Gold, you can receive up to $10,000 in precious metals for free.

Passive income, even in a down market

Like stocks, real estate has its cycles, but it doesn’t rely on a booming market to generate returns.

Even in a downturn, high-quality, essential real estate can continue to produce passive income through rent. In other words, you don’t have to wait for prices to rise to see a payoff — the asset itself can work for you.

In fact, Buffett has often pointed to real estate as a prime example of a productive, income-generating asset. In 2022, he stated that if you offered him “1% of all the apartment houses in the country” for $25 billion, he would “write you a check.”

Of course, you don’t need billions — or even to buy an entire property — to benefit from real estate investing. Crowdfunding platforms like Arrived offer an easier way to get exposure to this income-generating asset class.

Backed by world class investors like Jeff Bezos, Arrived allows you to invest in shares of rental homes with as little as $100, all without the hassle of mowing lawns, fixing leaky faucets or handling difficult tenants.

The process is simple: browse a curated selection of homes that have been vetted for their appreciation and income potential. Once you find a property you like, select the number of shares you’d like to purchase and then sit back as you start receiving any positive rental income distributions from your investment.

Another option is First National Realty Partners (FNRP), which allows accredited investors to diversify their portfolio through grocery-anchored commercial properties without taking on the responsibilities of being a landlord.