Total Savings/Net Worth Forum

[Anonymous User]

Class of 2016, Chicago. 695k Net Worth.

End of 2016: 60k
End of 2017: 131k
End of 2018: 245k
End of 2019: 408k
End of 2020: 640k
Now: 695k

Leaving big law soon for in-house position and hoping to leave law altogether once I hit $1.5m net worth.

Congrats. If you don't mind sharing relative comp numbers for the in-house position, that would be really enlightening. If taking a pay cut, how long do you think that pushes you back from hitting the 1.5m number?

I'm really struggling to hit the 1mm number which is my personal drop date for leaving law (still 1.5 more years to go). $1.5mm would make me feel a lot safer but that means staying in law for at least 4 more years from now.

[Anonatty]

Just came to say how impressive all of your #s are! Something to aspire to definitely.

[nealric]

Interesting thread. I'm not an attorney, but the responses are super biglaw-heavy. It seems that biglaw is a reliable path to the upper middle class, but not a great way to become "properly" rich. Most other youngish lawyers probably have very sad balance sheets.
One [biglaw associate] with minimal debt and strong saving/investing inclinations could easily be worth $1-2 million after 6-10 years of practice. I guess rainmaking shareholders could be worth high 7 figures and maybe low 8 figures if they continue the same saving/investing habits, but that would be in their 60s and 70s.
Law looks like a lot of work for the money!

What is a realistic median profit/partner figure for V100 shareholders?

I'd say that's generally true for any profession. If "properly" rich means 8 figure net worth+ at a relatively young age, then you are going to need an extraordinary income stream to do that. Most people who become properly rich have built a business of some sort (or got in early on a fast growing business). You don't get there by regular salary.

If you want to hit the "jackpot" in law, your best bet is to start a plaintiff's firm and swing for the fences. That's really more building a business than anything else. In many ways, the skills are similar to the folks who start tech companies. You need to be a fantastic salesperson first and foremost. A certain amount of hard technical skill is important, but the best salespeople can overcome mediocre hard skills. The tiny portion of folks who start as biglaw associates and end up big rainmaking equity partners have similarly built up a thriving business within the larger business of the firm.

For regular working folks who aren't likely to ever see 7 figure paydays, you can still become very well off, but it's generally more of a "get rich slow" sort of situation. Those folks who are worth $1-2MM in their mid 30s are on track for $5MM in their late 40s and $10MM+ (in 2021 dollars) before retirement. But is that really so bad of a fate? Keep your living expenses reasonable, and you will be financially independent in your 40s. Maybe you won't retire to a life of private jets and yachts, but you can certainly be free to do as you wish within reason.

[Anonymous User]

Class of 2016, Chicago. 695k Net Worth.

End of 2016: 60k
End of 2017: 131k
End of 2018: 245k
End of 2019: 408k
End of 2020: 640k
Now: 695k

Leaving big law soon for in-house position and hoping to leave law altogether once I hit $1.5m net worth.

Congrats. If you don't mind sharing relative comp numbers for the in-house position, that would be really enlightening. If taking a pay cut, how long do you think that pushes you back from hitting the 1.5m number?

I'm really struggling to hit the 1mm number which is my personal drop date for leaving law (still 1.5 more years to go). $1.5mm would make me feel a lot safer but that means staying in law for at least 4 more years from now.

Still negotiating, but it's in 165-180k range with a 25% target bonus. I think with current savings and what I anticipate I'd keep saving on in-house salary, I could probably hit $1.5m in about 6 years (less if the market continues to do well, more if it tanks). If I stayed in big law, I'd probably hit my target in 4.5 years, but there's 0% chance I'd make it that long (would certainly be pushed out before then).

[Jchance]

For regular working folks who aren't likely to ever see 7 figure paydays, you can still become very well off, but it's generally more of a "get rich slow" sort of situation. Those folks who are worth $1-2MM in their mid 30s are on track for $5MM in their late 40s and $10MM+ (in 2021 dollars) before retirement. But is that really so bad of a fate? Keep your living expenses reasonable, and you will be financially independent in your 40s. Maybe you won't retire to a life of private jets and yachts, but you can certainly be free to do as you wish within reason.

This is exactly what the study in the book Millionaire Next Door found out, that most millionaires in America got there by slow accumulation, not by get-rich-quick schemes. A few lucky souls got there via luck but for a regular person, getting there slowly is a more surefire way.

[Anonymous User]

Not sure how to calculate my final net worth, since I'm on PSLF and my debt doesn't matter, as long as I make it 10 years, which shouldn't be hard...

$125K cash (waiting to buy a house)
$50K 457(b)
$12K pension that will vest in 2.5 years (employer's contribution is about $25K in addition, but I have no claim to that until it vests)

$295K in school debt. Even though I have a 6-figure PSLF job, my monthly payments don't cover accumulating interest. Guess it's loan forgiveness or bust at this point for me.

I normally would have more of that cash in stocks, but the market right now is ridiculously inflated, and at today's prices, I don't think I'm missing out on many sustainable returns over the next decade. I bought in last March as things were bottoming out, but I have long since sold, fearing a second crash given the market's current ridiculous P/E values, etc.

Been out of law school 7 years, but had my current job for almost 3. No biglaw at any point, and I've never regularly worked over 40-50 hours per week (although, as a result of litigation, I've had a few 80-hour weeks scattered about).

I think I'm doing ok given my first 2 years were doing volunteer jobs.

[showusyourtorts]

I normally would have more of that cash in stocks, but the market right now is ridiculously inflated, and at today's prices, I don't think I'm missing out on many sustainable returns over the next decade.

I recently scrolled through the long-running 'student loans' thread on TLS and was struck seeing how many people over recent years had shared this sentiment (in 2016, 2017, 2018, 2019, and, even more recently, prior to the election).

I understand the sentiment, and I also know that it's ridiculously easy ex-post to look back on a literally historic bull market. But I do think it's worth noting that the stock market already reflects the market's -- i.e. many, many trained professionals' -- expectations of future value (however indeterminate that value is), and that time in the market almost always beats timing the market.. especially when your investment horizon is 10+ years.

Even so, personal finance is personal. I encourage you to consider perhaps start staggering small amount of investments into the market but understand that it's hard to get comfortable with investing money into a market that you think is overvalued.

EDIT: I went back and noticed that you said that you're saving for a house. In that case, I think it makes a lot of sense to hold off on investing some or all of that cash (especially if you expect to make a down payment in the next year or two). I figure I'll leave up the comment for the many others that are in similar positions - including a couple of my own close friends - that have 100k+ and growing just sitting in a HYSA with no short- or even mid-term investment goals because they think this run isn't sustainable.

[Anonymous User]

I think this market is particularly over valued right now due to record low interest rates forcing investors out of bonds and into stocks--people are literally buying stocks at insane valuations just because you get almost no ROI on bonds lately. Most analysts think it's going to take a decade for business profits to catch up to today's stock valuations. I agree, and I think there's almost no upside to investing in stocks these days with a medium-term time horizon (although bubbles like this one can continue to inflate far bigger than almost anyone can predict, and this one may inflate a bit more, like all bubbles, given enough time, it will eventually come back to earth).

I'd normally agree with all who think time in the market beats timing the market, but I think this is a uniquely bad time to be in the market--with only 1 or 2 other comparable periods in the stock market's history. When you mix that in with, yeah, I want to save that $125K for a house, it's incredibly difficult for me to put that money at risk right now, even though I doubt I'm going to need the entire $125K for a down payment.

[jsnow212]

I think this market is particularly over valued right now due to record low interest rates forcing investors out of bonds and into stocks--people are literally buying stocks at insane valuations just because you get almost no ROI on bonds lately. Most analysts think it's going to take a decade for business profits to catch up to today's stock valuations. I agree, and I think there's almost no upside to investing in stocks these days with a medium-term time horizon (although bubbles like this one can continue to inflate far bigger than almost anyone can predict, and this one may inflate a bit more, like all bubbles, given enough time, it will eventually come back to earth).

I'd normally agree with all who think time in the market beats timing the market, but I think this is a uniquely bad time to be in the market--with only 1 or 2 other comparable periods in the stock market's history. When you mix that in with, yeah, I want to save that $125K for a house, it's incredibly difficult for me to put that money at risk right now, even though I doubt I'm going to need the entire $125K for a down payment.

I imagine this is exactly what everyone who's held a solidly middle class+ job for the last 40 years and isn't a 401k millionaire said sometime in their 20s.

Let's do a different thought experiment:

Interest rates are rising (see T-Bonds), suggesting incoming inflation. If inflation happens, mortgage rates will rise. Rising mortgage rates = falling home prices. Falling home prices (starting from a historic high in home values, no less) with a 20% down payment (80% borrow) = $5 of lost value for each $1 of equity put in. You put $100k into a $500k home and housing prices fall 10% = you just lost 50% of your money! Poof, that's about as much the market shed in 2008 (you know, when the entire financial system failed). Can't happen? Think again. My parents' home, bought peak housing bubble, is still very much in the red 15 years later.

Long story short: Kids, if you don't actually know how to invest and you make a living through income as a lawyer, just follow the age-old advice of dollar-cost averaging the market. Timing is a sure fired way of ending up behind.

[alawyer2018]

Let's do a different thought experiment:

Interest rates are rising (see T-Bonds), suggesting incoming inflation. If inflation happens, mortgage rates will rise. Rising mortgage rates = falling home prices. Falling home prices (starting from a historic high in home values, no less) with a 20% down payment (80% borrow) = $5 of lost value for each $1 of equity put in. You put $100k into a $500k home and housing prices fall 10% = you just lost 50% of your money! Poof, that's about as much the market shed in 2008 (you know, when the entire financial system failed). Can't happen? Think again. My parents' home, bought peak housing bubble, is still very much in the red 15 years later.

Long story short: Kids, if you don't actually know how to invest and you make a living through income as a lawyer, just follow the age-old advice of dollar-cost averaging the market. Timing is a sure fired way of ending up behind.

Can you run your "thought experiment" again, although this time assume that housing prices rise after poster buys the home? Interested if you'll remain as snarky when you see the upside of leverage. If the poster wants a home, perhaps for his/her family or to start a family or otherwise, it could be perfectly reasonable to prioritize saving money for a down payment over throwing all of that cash into the stock market. Likewise, what would happen if poster put all of their money in stocks and they tanked 10%? There's risk in investing, whether it be in real estate or stocks. That being said, I would certainly try to max out my 401(k) contribution while also saving for the down payment, but I'm not sure whether poster's income allows for that.

[masterherm]

If I had $100k invested for every lawyer sitting on $100k in cash because “tHe MaRkEt iS oVeRvALuEd” I would.... come out way ahead. Honestly at this point any time I hear someone say it, it tells me they don’t understand the law of averages and basics of personal finance, and frankly I feel bad for them. I’ve given up trying to reason with these types. It’s basically Q-lite - they know better than everyone else.

Look, keeping money set aside for a down payment or other large purchases within a few years is one thing. That’s perfectly reasonable. But as soon as you start justifying your decision not to invest with timing-the-market astrology, you’ve lost all credibility of making rational decisions.

Set it and forget it.

[nixy]

[Jchance]

If I had $100k invested for every lawyer sitting on $100k in cash because “tHe MaRkEt iS oVeRvALuEd” I would.... come out way ahead. Honestly at this point any time I hear someone say it, it tells me they don’t understand the law of averages and basics of personal finance, and frankly I feel bad for them. I’ve given up trying to reason with these types. It’s basically Q-lite - they know better than everyone else.

Look, keeping money set aside for a down payment or other large purchases within a few years is one thing. That’s perfectly reasonable. But as soon as you start justifying your decision not to invest with timing-the-market astrology, you’ve lost all credibility of making rational decisions.

Set it and forget it.

+1. People say P/E ratio at 10 is undervalued, at 50 is overvalued. We are in the low 20s, and folks have always said it's overvalued. I just don't understand their math.

Time in the market has time and again beaten timing the market. Just buy every 2 weeks and forget about it.

[splitterfromhell]

If I had $100k invested for every lawyer sitting on $100k in cash because “tHe MaRkEt iS oVeRvALuEd” I would.... come out way ahead. Honestly at this point any time I hear someone say it, it tells me they don’t understand the law of averages and basics of personal finance, and frankly I feel bad for them. I’ve given up trying to reason with these types. It’s basically Q-lite - they know better than everyone else.

Look, keeping money set aside for a down payment or other large purchases within a few years is one thing. That’s perfectly reasonable. But as soon as you start justifying your decision not to invest with timing-the-market astrology, you’ve lost all credibility of making rational decisions.

Set it and forget it.

I can’t believe you just compared people’s views on personal finance to Q Anon.

[nealric]

I think this market is particularly over valued right now due to record low interest rates forcing investors out of bonds and into stocks--people are literally buying stocks at insane valuations just because you get almost no ROI on bonds lately. Most analysts think it's going to take a decade for business profits to catch up to today's stock valuations. I agree, and I think there's almost no upside to investing in stocks these days with a medium-term time horizon (although bubbles like this one can continue to inflate far bigger than almost anyone can predict, and this one may inflate a bit more, like all bubbles, given enough time, it will eventually come back to earth).

I'd normally agree with all who think time in the market beats timing the market, but I think this is a uniquely bad time to be in the market--with only 1 or 2 other comparable periods in the stock market's history. When you mix that in with, yeah, I want to save that $125K for a house, it's incredibly difficult for me to put that money at risk right now, even though I doubt I'm going to need the entire $125K for a down payment.

I imagine this is exactly what everyone who's held a solidly middle class+ job for the last 40 years and isn't a 401k millionaire said sometime in their 20s.

Let's do a different thought experiment:

Interest rates are rising (see T-Bonds), suggesting incoming inflation. If inflation happens, mortgage rates will rise. Rising mortgage rates = falling home prices. Falling home prices (starting from a historic high in home values, no less) with a 20% down payment (80% borrow) = $5 of lost value for each $1 of equity put in. You put $100k into a $500k home and housing prices fall 10% = you just lost 50% of your money! Poof, that's about as much the market shed in 2008 (you know, when the entire financial system failed). Can't happen? Think again. My parents' home, bought peak housing bubble, is still very much in the red 15 years later.

Long story short: Kids, if you don't actually know how to invest and you make a living through income as a lawyer, just follow the age-old advice of dollar-cost averaging the market. Timing is a sure fired way of ending up behind.

This example doesn't make any sense. You own the entire house, not just the portion that is your down payment. Your mortgage balance doesn't change based on how much the house is worth. If the house goes down in value by 10%, you lost 10% of your investment in it.

Housing can drop in value, but its generally more stable than the equity market. It takes extraordinarily bad luck or an extraordinarily bad purchase decision to own real estate that is underwater for 15 years. The vast majority of the market is well past pre-housing crisis valuations.

That said, I do agree that timing the market is a fool's errand (maybe not on par with Q-anonsense, but ill-advised nonetheless). Head over to boggleheads.org and you will find a new poster ever few months who declares they have gone all cash because the market is overvalued. This has been happening for at least the last decade. Almost every one of those posters has lost money as the result of that decision. Even if you know for an absolute certainty that the market is in a bubble, that doesn't mean it makes sense to wait it out. The .com bubble was certainly a bubble in 1996, but took 4 more years to burst, and you would have left a lot on the table walking away then.

Plus, when you market time, you have to be right TWICE. Suppose you are right and a crash is immanent, and you get out of the market just in time. When do you get back in? How do you know what the bottom is. In a down market, every rise will be met with a chorus of "dead cat bounce." You won't know for certain that the market is on the way to recovery until it has recovered.

[jsnow212]

I think this market is particularly over valued right now due to record low interest rates forcing investors out of bonds and into stocks--people are literally buying stocks at insane valuations just because you get almost no ROI on bonds lately. Most analysts think it's going to take a decade for business profits to catch up to today's stock valuations. I agree, and I think there's almost no upside to investing in stocks these days with a medium-term time horizon (although bubbles like this one can continue to inflate far bigger than almost anyone can predict, and this one may inflate a bit more, like all bubbles, given enough time, it will eventually come back to earth).

I'd normally agree with all who think time in the market beats timing the market, but I think this is a uniquely bad time to be in the market--with only 1 or 2 other comparable periods in the stock market's history. When you mix that in with, yeah, I want to save that $125K for a house, it's incredibly difficult for me to put that money at risk right now, even though I doubt I'm going to need the entire $125K for a down payment.

I imagine this is exactly what everyone who's held a solidly middle class+ job for the last 40 years and isn't a 401k millionaire said sometime in their 20s.

Let's do a different thought experiment:

Interest rates are rising (see T-Bonds), suggesting incoming inflation. If inflation happens, mortgage rates will rise. Rising mortgage rates = falling home prices. Falling home prices (starting from a historic high in home values, no less) with a 20% down payment (80% borrow) = $5 of lost value for each $1 of equity put in. You put $100k into a $500k home and housing prices fall 10% = you just lost 50% of your money! Poof, that's about as much the market shed in 2008 (you know, when the entire financial system failed). Can't happen? Think again. My parents' home, bought peak housing bubble, is still very much in the red 15 years later.

Long story short: Kids, if you don't actually know how to invest and you make a living through income as a lawyer, just follow the age-old advice of dollar-cost averaging the market. Timing is a sure fired way of ending up behind.

This example doesn't make any sense. You own the entire house, not just the portion that is your down payment. Your mortgage balance doesn't change based on how much the house is worth. If the house goes down in value by 10%, you lost 10% of your investment in it.

Housing can drop in value, but its generally more stable than the equity market. It takes extraordinarily bad luck or an extraordinarily bad purchase decision to own real estate that is underwater for 15 years. The vast majority of the market is well past pre-housing crisis valuations.

The bank owns the non-equity portion of your house and it is first in the waterfall. And yes, if you bought a house where the price if 20% lower than the price you paid for it, you are still not breakeven if your original investment was 20% down. To this day, housing prices in non Tier-1 hot markets has not fully recovered. (For example many suburbs in NY/NJ/CT area.)

Basically, my entire point is that there is risk everywhere, including non-market investments like homes. Timing is deadly.

[Anonymous User]

Let's do a different thought experiment:

Interest rates are rising (see T-Bonds), suggesting incoming inflation. If inflation happens, mortgage rates will rise. Rising mortgage rates = falling home prices. Falling home prices (starting from a historic high in home values, no less) with a 20% down payment (80% borrow) = $5 of lost value for each $1 of equity put in. You put $100k into a $500k home and housing prices fall 10% = you just lost 50% of your money! Poof, that's about as much the market shed in 2008 (you know, when the entire financial system failed). Can't happen? Think again. My parents' home, bought peak housing bubble, is still very much in the red 15 years later.

Long story short: Kids, if you don't actually know how to invest and you make a living through income as a lawyer, just follow the age-old advice of dollar-cost averaging the market. Timing is a sure fired way of ending up behind.

Can you run your "thought experiment" again, although this time assume that housing prices rise after poster buys the home? Interested if you'll remain as snarky when you see the upside of leverage. If the poster wants a home, perhaps for his/her family or to start a family or otherwise, it could be perfectly reasonable to prioritize saving money for a down payment over throwing all of that cash into the stock market. Likewise, what would happen if poster put all of their money in stocks and they tanked 10%? There's risk in investing, whether it be in real estate or stocks. That being said, I would certainly try to max out my 401(k) contribution while also saving for the down payment, but I'm not sure whether poster's income allows for that.

FWIW, I am maxing out on 457(b) (my 401k equivalent) this year and last.

[nealric]

I think this market is particularly over valued right now due to record low interest rates forcing investors out of bonds and into stocks--people are literally buying stocks at insane valuations just because you get almost no ROI on bonds lately. Most analysts think it's going to take a decade for business profits to catch up to today's stock valuations. I agree, and I think there's almost no upside to investing in stocks these days with a medium-term time horizon (although bubbles like this one can continue to inflate far bigger than almost anyone can predict, and this one may inflate a bit more, like all bubbles, given enough time, it will eventually come back to earth).

I'd normally agree with all who think time in the market beats timing the market, but I think this is a uniquely bad time to be in the market--with only 1 or 2 other comparable periods in the stock market's history. When you mix that in with, yeah, I want to save that $125K for a house, it's incredibly difficult for me to put that money at risk right now, even though I doubt I'm going to need the entire $125K for a down payment.

I imagine this is exactly what everyone who's held a solidly middle class+ job for the last 40 years and isn't a 401k millionaire said sometime in their 20s.

Let's do a different thought experiment:

Interest rates are rising (see T-Bonds), suggesting incoming inflation. If inflation happens, mortgage rates will rise. Rising mortgage rates = falling home prices. Falling home prices (starting from a historic high in home values, no less) with a 20% down payment (80% borrow) = $5 of lost value for each $1 of equity put in. You put $100k into a $500k home and housing prices fall 10% = you just lost 50% of your money! Poof, that's about as much the market shed in 2008 (you know, when the entire financial system failed). Can't happen? Think again. My parents' home, bought peak housing bubble, is still very much in the red 15 years later.

Long story short: Kids, if you don't actually know how to invest and you make a living through income as a lawyer, just follow the age-old advice of dollar-cost averaging the market. Timing is a sure fired way of ending up behind.

This example doesn't make any sense. You own the entire house, not just the portion that is your down payment. Your mortgage balance doesn't change based on how much the house is worth. If the house goes down in value by 10%, you lost 10% of your investment in it.

Housing can drop in value, but its generally more stable than the equity market. It takes extraordinarily bad luck or an extraordinarily bad purchase decision to own real estate that is underwater for 15 years. The vast majority of the market is well past pre-housing crisis valuations.

The bank owns the non-equity portion of your house and it is first in the waterfall. And yes, if you bought a house where the price if 20% lower than the price you paid for it, you are still not breakeven if your original investment was 20% down. To this day, housing prices in non Tier-1 hot markets has not fully recovered. (For example many suburbs in NY/NJ/CT area.)

Basically, my entire point is that there is risk everywhere, including non-market investments like homes. Timing is deadly.

This seems like a misunderstanding of the difference between debt and equity. A "waterfall" is a concept relevant to an equity arrangement.

The bank does not own any of your house. It owns a debt instrument secured by your asset (the house). As a secured creditor, the mortgage lender comes before any unsecured creditors, but that's only relevant if you are in default. Yes, your net home equity will rise/fall on a leveraged basis (because it's a leveraged investment), but your investment is in the entire home, not just your home equity. If you borrowed $500k, you pay them $500k plus relevant interest regardless of whether the house is worth $250k or $1MM. Mortgages do have the advantage of being non-recourse debt in many cases, which means the lender can't come after you for the difference if you walk away when the debt is greater than home is worth.

But sure, there is risk everywhere. Even cash has risk (inflation). Real estate is generally less risky than public equity markets, and is less volatile. That is offset by the fact that real estate is a leveraged investment for most.

[Anonymous User]

Timing the market is far from an exact science, and it's usually not a smart thing to do, but at times of extreme over-valuation (as in maybe only 3-4 times in its history), it's far from witchcraft. There are plenty of valuation indicators that correlate with pending crashes. Here's just one of them:

https://markets.businessinsider.com/new ... 1030067388

Saying that you can never time the market makes you just as blind as people who are always trying to time the market based on slight variations in valuation. There are metrics out there that predict crashes, but as with correlations within any large, extremely complex ecosystem, they only have predictive power with some of the more large-scale events.

The bottom line is that stocks aren't purely speculative--you actually own a thing (part of a corporation) that produces value. That value can be measured by the book value of the company, present corporate earnings, expected future corporate earnings, etc. Predicting what will happen with just one company involves a lot of guesswork even for the most experienced stock analysts, but when the total value of the market no longer has any relationship to the economy that powers it, it's a sure sign that something is wrong.

[Anonymous User]

And, to add on to my post above, the surge into stocks hasn't been totally irrational given their already-inflated value. People have been flocking to them in unusual fashion given that low interest rates have ground down returns on treasuries and corporate bonds. But when interest rates rise (and they may be forced upward due to inflation fears), you no longer have any justification at all for stocks at their current valuation.

[nealric]

Timing the market is far from an exact science, and it's usually not a smart thing to do, but at times of extreme over-valuation (as in maybe only 3-4 times in its history), it's far from witchcraft. There are plenty of valuation indicators that correlate with pending crashes. Here's just one of them:

https://markets.businessinsider.com/new ... 1030067388

Saying that you can never time the market makes you just as blind as people who are always trying to time the market based on slight variations in valuation. There are metrics out there that predict crashes, but as with correlations within any large, extremely complex ecosystem, they only have predictive power with some of the more large-scale events.

The bottom line is that stocks aren't purely speculative--you actually own a thing (part of a corporation) that produces value. That value can be measured by the book value of the company, present corporate earnings, expected future corporate earnings, etc. Predicting what will happen with just one company involves a lot of guesswork even for the most experienced stock analysts, but when the total value of the market no longer has any relationship to the economy that powers it, it's a sure sign that something is wrong.

You can come up with whatever metrics you want to determine if the market is "overvalued", but the problem is the sample size is small. There's only been a few major crashes, and they have all gone south at different point (even within those metrics like PE/10 or Warren's GDP based metric). Just a couple years ago, everyone freaked out about the bond yield inversion. It had almost always signaled a big crash historically. But the big crash never really came (unless you count the COVID flash crash and recovery).

Plus, even once you have full knowledge the market is overvalued, the question is "so then what?" Do you shift to a segment that seems less overvalued (value instead of growth?) Do you go all cash? If you are drastically changing your investment mix, what's your trigger to go back to the old mix? Remember, you have to be right both times for a market timing strategy to work.

If you just ignore all that, you are most likely to do fine. You will certainly have to ride out volatility, but you'll most likely earn the historical equity returns. That's enough for a fine retirement, and the volatility is not a big deal if you are a long ways from retirement. It's retirees that should be worried about an impeding crash. They have real sequence of returns risk. New grads shouldn't sweat it.

[nealric]

And, to add on to my post above, the surge into stocks hasn't been totally irrational given their already-inflated value. People have been flocking to them in unusual fashion given that low interest rates have ground down returns on treasuries and corporate bonds. But when interest rates rise (and they may be forced upward due to inflation fears), you no longer have any justification at all for stocks at their current valuation.

Bond yields would have to go up a whole heck of a lot to erode the equity risk premium. Maybe they will, but it's a long way off on the horizon.

[dtlaatty]

Let's do a different thought experiment:

Interest rates are rising (see T-Bonds), suggesting incoming inflation. If inflation happens, mortgage rates will rise. Rising mortgage rates = falling home prices. Falling home prices (starting from a historic high in home values, no less) with a 20% down payment (80% borrow) = $5 of lost value for each $1 of equity put in. You put $100k into a $500k home and housing prices fall 10% = you just lost 50% of your money! Poof, that's about as much the market shed in 2008 (you know, when the entire financial system failed). Can't happen? Think again. My parents' home, bought peak housing bubble, is still very much in the red 15 years later.

Long story short: Kids, if you don't actually know how to invest and you make a living through income as a lawyer, just follow the age-old advice of dollar-cost averaging the market. Timing is a sure fired way of ending up behind.

Likewise, what would happen if poster put all of their money in stocks and they tanked 10%?

Alternative approach — nothing happens because you didn’t lose anything because you are not a market timer and have a decades long horizon. Rather, you take advantage of the dip to buy some more.

I get the “need a down payment next year” concern and that may call for different measures, but folks advocating market timing here for general life investing purposes are playing a dangerous game.

[Anonymous User]

As someone who fully invests their paycheck as soon as it comes in...

I think this attitude of “lawyers suck at money why do they hold cash” and “lol lawyers timing the market” is unnecessarily toxic. Past performance is not indicative of future returns. With interest rates as low as they are and the volatility associated with an unprecedented pandemic, I think it’s an absolutely reasonable position to take. There’s basically no difference right now between holding cash and investing in federal bonds.

[Anonymous User]

Senior associate in BL. I think my time on the gravy train will end in a couple of years or so, but it's been a good run.

$260k in pre-tax vehicles, 100% in FSKAX.

$450k in cash.

$0 debt.

The cash number is ridiculous. Four years ago, our goal was to buy a home with cash (personal choice to sacrifice potential returns for the comfort of having no mortgage). Now mortgage rates are way lower than they used to be, and the last four years were great for the market, but I don't have any regrets--hindsight is 20/20. However, we're now thinking about doing a 20% downpayment and plowing the rest into equities. Rates are just too low to justify tying up that much money in a house.