Are Stocks Too Expensive? Hell No

Are Stocks Too Expensive

Are Stocks Too Expensive? Hell No

Grant Sabatier

Founder of Millennial Money. Dubbed "The Millennial Millionaire" by CNBC, Grant went from $2.26 to $1 million in 5 years, reaching financial independence at age 30. He's passionate about helping others build wealth and is addicted to Personal Capital.

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The Dow hit 20,000 this week for the first time in history and stocks have been ridiculous over the past 7 years, but extra ridiculous over the past month.

So what? Anyone who invests seriously knows the Dow is bullshit and doesn’t matter.bullshit

It’s an outdated system of measuring the market value. It’s really only used by the media, and now the media, analysts, and many bloggers are worried the stock market is too expensive.

Am I worried? Nope.

I am still bullish on the market over the next 5, 10, 20 plus years. Sure, I can’t predict the future and you don’t have to listen me, but here’s what I am doing with my money.

Shorter Term Investing: Don’t invest more than 60% in stock

Are Stocks Too Expensive

I am planning to buy a property in either Seattle or San Diego in the next 3 years. I need to get out of Chicago and move to the West Coast. I have West Coast in my blood and it’s only going to get more expensive out there, so I am looking to buy a property and rent it, until I can move out there. Mrs. Millennial Money would agree.

I am not investing my West Coast Best Coast money directly in my trusty Vanguard Total Market index fund. It’s just not worth the risk to me in the short term.

In reality, who knows what the hell will happen with the market over the next 3 years, so I am hedging a bit.

For this money I am investing it in the Vanguard Balanced Index Fund. So in 60% equities/40% bonds. If you are investing and need the money in the next 3 years, do yourself a favor and don’t get too tied up in the market.

Longer Term Investing: Keep investing as much as possible in stock

 

Sure, stocks are definitely expensive by historical standards – the P/E (price to earnings ratio) is over 28, when the average over the past 10 years has typically been closer to 16 to 17.

But the market is a measure of the value people put into companies. When you invest, or anyone in invests, you are investing in the belief that the value of that company will grow over time.

I personally have been investing my money as quickly as I make it – putting almost 95% of my income directly into the market in various forms. Just recently I bought $20,000 in Amazon stock in my IRA. I have also been piling more and more money into my various index funds, as I’ve outlined in my millennial money portfolio.

I think everyone should keep investing in the stock market, even as the values continue to go up. Keep saving and investing as much as you can. Don’t be afraid. Fear is your enemy. Anxiety about the market is your enemy.

If you are waiting to open up your 401k, or to make your 401k or Roth IRA contributions until the market cools a bit – don’t. The longer you sit on the sidelines the more likely you will either spend that money on something else (something always comes ups) or you will continue to wait until the perfect time or the perfect price.

Now is the perfect time. Don’t buy the hype. I am investing in the long game and you should too. The market will go up and down, up and down, up and down, and the media will be right there sensationalizing the whole thing. Ignore it. Save as much as you can. Transition from employer to investor. Make your money work for you.

Unless the whole world collapses under our new President, but then we will have bigger worries than the market.

Checkout two different perspectives on the Millennial Money Minutes podcast below:

Most Americans are sitting on the sidelines

 

Unfortunately, a majority of Americans aren’t participating in passive or active stock investing. They are missing out on one of the best ways so build wealth. Unless you are a value investor like Warren Buffet there is no reason to sit with your cash on the sidelines looking for the “deal”. Deals are really hard to find and take a ton of work. Invest most of your money in the entire market.

You are not Warren Buffet. I am not Warren Buffet.Warren Buffet Meme

I hear over and over from investors who are waiting for the value stock – and many of them are straight up missing out. If you want to risk your portfolio on one stock that’s up to you. Not my vibe.

So what does this all mean to me?

Stick with your plan. For the short term stay safe, as you would in any market. Don’t expect anything more than 3-5% annual gains, which ain’t much, but it’s better than 0.02% in most savings accounts.

For the long term push forward relentlessly. Keep investing as much as you can. What matters most is that you are getting your money in to participate in the gains over the next 5, 10, 20 years.

Don’t miss out.

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Grant Sabatier
grant@millennialmoney.com

Founder of Millennial Money. Dubbed "The Millennial Millionaire" by CNBC, Grant went from $2.26 to $1 million in 5 years, reaching financial independence at age 30. He's passionate about helping others build wealth and is addicted to Personal Capital.

16 Comments
  • The Green Swan
    Posted at 07:43h, 27 January Reply

    I agree. I’m not one to try timing the market. I put my trust in long term returns and will continue to plow extra cash into stocks.

    • Grant @MillennialMoney
      Posted at 15:09h, 27 January Reply

      Nice! Thanks for reading Green Swan

  • Matt
    Posted at 17:30h, 29 January Reply

    I agree, it seems like most people view investing in the stock market as gambling. It can be risky, but it’s not gambling. And there are plenty of ways to mitigate that risk and invest in a way that suits your tolerance.

    Investing is also not a get rich quick scheme, something only professionals can do, or a terribly complicated subject to learn the minimal amount needed to have it benefit you. Maybe encouraging people to look at it as just another part of a well rounded personal financial plan (aka talking about it in the most mundane way possible) can make it seem less threatening, complicated, and exclusive – aka not much different from opening a savings account.

    • Grant @MillennialMoney
      Posted at 14:12h, 30 January Reply

      Thanks Matt. I couldn’t agree more.

  • T@TheTirelessWorker.com
    Posted at 06:07h, 01 February Reply

    “Unless the whole world collapses under our new President, but then we will have bigger worries than the market.”

    So very true. If this were to happen, I think finances would be the last thing on our mind. Just stick to the long term then!

    • Grant @MillennialMoney
      Posted at 08:41h, 01 February Reply

      It will be an interesting 4 years for sure! Hold onto your hats!

  • The Friday Feast ~ the 3rd of January - ThinkSaveRetire.com
    Posted at 04:00h, 03 February Reply

    […] My favorite post for this week comes from Millennial Money who asked (and answered) the question: Are stocks too expensive? […]

  • The Friday Feast ~ the 3rd of February - ThinkSaveRetire.com
    Posted at 08:14h, 03 February Reply

    […] My favorite post for this week comes from Millennial Money who asked (and answered) the question: Are stocks too expensive? […]

  • NinjaPiggy
    Posted at 12:28h, 03 February Reply

    Great read! Very few of us have the resources to save our way to millionaire status (not that all people are striving for that goal). The vast majority have no choice but to invest in order to reach our goals. You would have to save over $33,000/year for 30 years to reach $1,000,000, assuming you are keeping the money in cash at 0% return. Investment returns drastically cut down on the amount we need to put aside every year.

    Investing at all-time highs may not be ideal, but what’s the alternative? Nothing looks great right now, but we need to stay focused on the long term.

    Pessimism will always sound smarter than optimism. I wrote a post about this last year. I hope you don’t mind me linking it here: https://www.ninjapiggy.com/blog/staying-optimistic

    • Grant @MillennialMoney
      Posted at 17:08h, 03 February Reply

      Thanks NinjaPiggy. Love your blog name btw and your avatar! I literally lol’d. Yeah get it in the market! That’s the key. Thanks for sharing your post as well. It definitely is important to stay optimistic – neuroscientists know that optimism can actually rewire your brain!

  • The Money Commando
    Posted at 18:52h, 03 February Reply

    I have to strongly disagree with the premise of this article. The reality that is valuation matters. A lot. And there’s an important distinction between timing the market and demanding value. The stock market has only been this richly valued a few times in the last ~100 years or so, and every time the return were negative for the next 3-5 years.

    Why would you commit your money to an investment that, in all likelihood, will give you a negative return over the next 3-5 years when there are other places you can put your money to get a much better return? For example, if you have a mortgage at 4% then you can pay off your mortgage and get a guaranteed 4% return while simultaneously reducing the leverage (and risk) in your finances.

    Blindly investing money when we are at all-time high valuations just doesn’t make sense. There are other things you can do with your money in the meantime (rental properties, paying off a mortgage, etc) that will provide better returns than the market at this valuation.

    • Grant @MillennialMoney
      Posted at 14:28h, 04 February Reply

      I appreciate your comment Money Commando. In the post I mention how I talking specifically about a longer time horizon 10+ years. I know a lot of people who are just sitting on the sidelines, not contributing to 401ks and IRAs because they think stocks are overvalued. In my opinion, this is a huge mistake.

      I’m still bullish over the next 5, 10, 20 years. Sure equities are expensive, but no one can really time the market and the risk of not investing is great. I agree that paying off a mortgage in the short term could be a better decision – as you can see in the post I also talk about how I am saving for a property in San Diego or Seattle with my short term capital. Tough to predict the future. I personally have a very diversified portfolio of equities, physical properties, domains, art, a bunch of investment classes – so I don’t have all my money in the market and don’t “blindy” invest in the market for my non-tax-advantaged investments. But for longer term tax-advantaged, which I should have been clearer, the market being expensive is missing the point.

  • Jason
    Posted at 18:45h, 04 February Reply

    Absolutely agree. Unfortunately, a good deal of those not participating are my students who either don’t understand or are scared of the market. I try to teach them the other way….but it can be a hard sell.

    • Grant @MillennialMoney
      Posted at 09:50h, 06 February Reply

      Thanks Jason. It’s really hard to go against popular opinion and old mindsets. Keep teaching!! Thanks for your comment.

  • Adrian @ Investor Tuition
    Posted at 21:16h, 09 February Reply

    A good article and some great comments. I notice both’ for’ and ‘against’ comments re the post, which only proves the individual nature of share selection I guess, Everyone has a valid opinion which can only be tested via their own ‘wallet’ but I certainly believe there are times when we have market circumstances favorable to ensuring long term success and times we don’t.. I understand your concept Grant, which is “dollar cost averaging’ into the market, which has always been a successful way of ‘drip feeding’ money into markets and I think this should never be discouraged. but I also favor the cyclical nature of markets in particular Dow ‘ Theory’ which can provide a macro map of sorts as to decent entry and possibly exit points.

    Understanding some approximation of where we are in a cycle can provide prolonged success and if that cycle position is viewed as being ‘the wrong’ time, then standing aside can certainly alleviate a number of years of disappointment as mentioned in a prior comment. Long term investing is, for the long term, but human nature being what it is, can easily be discouraged if an investor who is neither committed or knowledgeable suffers through a couple of years of negative returns. It is easy to give up and buy an off the plan home unit at that point as an alternative (intentional sarcastic comment aimed at property developers) . Some knowledge about macro drivers and cycles would help the uninitiated to forge their long term strategy far more confidentially just as you are doing Grant.

    Thanks for your post, I enjoyed reading it plus comments.

    • Grant @MillennialMoney
      Posted at 10:26h, 10 February Reply

      Thanks for the thoughtful comment Adrian. I think the two most paralyzing human emotions are fear and regret, both of which factor heavily into money and investing decisions. Generally I think people are too conservative with their investment choices – holding for years and years in cash, but of course, that’s a personal decision. What really gets me is younger investors (my employees etc.) who are 25 and telling me the stock market is too expensive so they won’t be contributing to their 401k. It’s a destructive narrative in my opinion. Sure stocks are at all-time highs, but to forego the long term opportunities, tax advantages, etc. etc. etc. and sit on the sidelines is a huge missed opportunity. There is always risk in anything, but to not participate in the market is even riskier in my opinion. I cringe at the years of missed compounding opportunities.

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