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How much stocks should I own at age 37, 40 or 42?

A lot more than you might think, around 100%

The game is rigged

Good question. The short answer is, as always, 42. The longer answer is slightly more complicated, but boils down to 100% of all the liquidity you know you won’t need for the coming 42 months. Yes, really. You could almost say “12 months”, since over that time period you should be able to come up with more money or manage even if you have to sell some of your holdings at a 30% loss.

You see, the game is rigged. Not intentionally, but in practice. As long as GDP rises, the stock market will rise. Even more so, actually: as long as debts and the amount of currency rise, stocks will rise, and that is faster than even nominal GDP. Ever faster, since debts are now past the point of no return and thus debts must be serviced by more debt in an accelerated fashion.

This might be news to you, but the stock market overall has very little to do with created value, valuation or real investors making informed decisions and taking calculated risks. No, flows are more important than value. Value investing still holds for individual cheap stocks, no matter if the market comes to appreciate them or not. But for the overall market, it’s all about debt, money creation and flows of value-agnostic index and algo capital.

Don’t worry if you lack a nest egg

When you are 37, 40 or 42 years old you should already have a decent nest egg of 2 times your annual gross income. Let’s call it a quarter of a million dollars in 2024 money. If you don’t, don’t worry, it’s never too late to start investing. In any case, at 42 you should be able to easily save 25% of your gross income. In just 6 years time you’ll get to the 2x nest egg.

And you should have all that money invested in equities, your own business or high yielding corporate bonds. If worse comes to worst, as in the 1930s or 1970s you’ll experience a drawdown of 50-80% of your portfolio, but you should still be able to get by on your wages and still have money over for buying at bargain prices. In the 1930s, the Great depression and a world war, you first bottomed out in 1932 and then again in 1937. Just ten years after the crash, your total savings including opportunistic buying would be very much in black. In the 1970s the process was even quicker.

This advice might seem flippant and careless, not to mention surprising coming from a value guy like me, mostly known for short selling (although my bullish view on for example Meta has been noticed by some). But the thing is, stocks are both real and nominal products. They are like a tax on the nominal economy, and the economy has to go up, lest the house of debt cards come crashing down.

100% in stocks

The market does get overextended from time to time. And now it looks worse than ever. However, it did back in 2000 and 2007 too, and here we are… much higher. Just like in Argentina. The lesson is that we don’t need value, just higher prices, at least if the alternative is fiat currency. For most people the choice is in practice between a bank account or stocks. In that case the answer is always (100%) stocks, as long as you have 15 years or more to live.

More stimulus is (always) coming

I’m often considered a “perma bear” (always negative to stocks)… and currently stocks in the US are trading at 3x the historical average in terms of revenues so you’d expect me to recommend selling. Not so much actually. Sure, I can see a potential short term 50% downside in the short term, even more for tech stocks, just as in 2000-2003 and 2007-2009. But that would only amount to an opportunity to load up on more stocks. The reason is that politicians need a stable financial system, and will consequently create as much money for that as needed. They created trillions of dollars during the covid crisis. This time tens of trillions is my best guess. Exotic investments like gold or Bitcoin might do even better, but why not stick to the backbone of the economy’s value creators?

Thus…

The sun also rises.

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P.S. Over time stocks have always done the job.

Incidentally so has a certain shiny rock done too, but let’s disregard gold for now. Hence, the answer to your direct question is to keep all your liquidity in stocks. 42 months is a workable benchmark for even the most conservative, but twelve months is the correct answer, if you are calm, composed and rational. And I’m saying this at a point of record high valuations, in the 1-0.1% of history, measured in terms of the Price/Sales ratio for S&P 500.

There is a risk of a significant correction, but it still is rational to keep more or less all of your capital in stocks, except what you’ll need for living expenses over the coming few years.

The following, by the way, is the crap Chat GPT spews out as advice. It reflects the commonly accepted reasonable view. And is almost complete and utter garbage:

The appropriate amount of stocks you should own at age 37 depends on various factors such as your financial goals, risk tolerance, time horizon, current financial situation, and investment strategy. Here are some general guidelines to consider:

Ultimately, there is no one-size-fits-all answer to how much stocks you should own at age 37. It’s crucial to assess your individual circumstances and consult with a financial advisor who can help you develop a personalized investment strategy based on your goals and risk tolerance.

The Investing Course

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