Are Stocks Too Expensive? Hell No
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.
It’s an outdated system of measuring the market value.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
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.
Check out 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 Buffett 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 Buffett. I am not Warren Buffett.
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.