First few years out of college were just "max out 401k contributions into some target fund" + build emergency fund, but now that I've amassed more cash than what an emergency fund requires, what does one do?
Originally, my plan was to use it for a house down-payment, but with the mortgage rates having nearly doubled in the last 6 months, that's kind of out of the question at this point (especially having moved to a higher property value area to be closer to friends and family).
Everything I've seen in the news for last few months just seems to say "sorry, the last 50 years was a gravy train, it'll never work that way again, you're screwed".
Both my parents' and grandparents' entire careers existed (or to this point existed) during the "good times", so I'm honestly feeling like I can't just take their advice directly.
Part of me wants to leave my present (tech) job and move to a FAANG type company (for the pay increase), but with all the uncertainty on the horizon, are the big tech companies going to maintain their current headcount or salaries if another '08 style recession (or worse) hits? How stable are their revenues if people start spending way less money on things?
I first came to Palo Alto in 1984. All the houses were underwater (worth less than their mortgages). The tech boom was over and consensus was that it wasn’t coming back. Too bad you missed that!
Just keep investing (dollar cost averaging). Pick your poison: “barbell” as some other comments have suggested or just a couple of very broad index funds. Since you have a long time ahead of you, I’d recommend the latter. You can spend some of it on a down payment when that makes sense to you.
We distort the lives of those in the past much in the same way do the people we follow on social media.
Higher interest rates lead to lower home prices, which should make it easier to make a down payment. Interest rates may double, but mortgage payment amounts typically end up staying the same. You are in a prime position to buy a house. In the next 30 years, mortgage rates will likely decrease and you can refinance to a better rate, and end up paying a lower price for your house than what you would have had mortgage rates stayed low.
I barely knew Portland existed before that and now I just know I wouldn't want to settle there.
Real estate seems still up in general, I assume because of a mix of inflation and BlackRock / investors overpaying for it to escape all the other failing assets
Pick a few things you can put your money into, which you have confidence won't lose value given a long enough time horizon. For me, this is SPY (highest alpha but needs 10 years to recover). The traditional 60/40 SPY/TLT mix is great. Currency funds also good. VTI & chill is good. Right now the Euro has Dollar parity (ECB isn't fighting inflation aggressively and won't start reducing its balance sheet for a while), maybe throw some of that into the mix.
Sell covered calls to reduce your cost basis.
Don't spend cash. Invest cash, borrow against it at favorable interest rates, and make purchases with the borrowed money. SBLOC, portfolio margin (>100k) can unlock some cheap (75bp above prime) cash.
If I could send a message to myself 20 years ago it would be the above.
All of my words are nonsense, nothing in this comment shall be construed as professional or financial advice. I've been excessively stupid with money far longer than I should.
The wiki and forums are great resources.
https://www.advisorperspectives.com/dshort/updates/2022/07/0...
https://www.advisorperspectives.com/dshort/updates/2022/07/0...
https://www.advisorperspectives.com/dshort/updates/2022/07/0...
I bought a fixer-upper in 2008 for 200k; sold it for 425k 5 years later. Recently it sold for 650k (we still get redfin notifications.) In the meantime I bought a house for 625k (nice house with some rough edges) and sold it 18 months ago in covid real estate madness for 950k. We certainly put money into both houses over time, but we'd never have been able to do what we did had we not started at the bottom of the market.
Wait a year or two.
The Great Financial Crisis will be the only event of this nature in our lifetimes. The country would need to overbuild like crazy to cause housing to crash like that again.
Everyone is expecting housing prices to fall in "a year or two." I've been hearing this for two years now. The market has a habit of doing the opposite of what people expect it to.
OpenDoor has been taking a loss on a lot of properties it bought over the past few months too.
Considering inventory is up over 2X YOY as well, I expect prices to fall even further here. I'm not sure if it'll get as bad as 08 though, but a 30-40% drop isn't out of the question the way things are headed imo.
The thing is though with rates as high as they are, housing prices dropping this much actually doesn't make affordability any better unless you can pay in cash.
I don't understand how they are able to stay solvent. It's gotta be VC money keeping them alive, right?
E.g. I the last housing bubble started popping in 2005-2006, but didn't bottom until about 2010-11
The real estate market won't crash, and it especially won't crash in high-demand areas (Southern California, the Bay Area, Atlanta, SoFlo, Colorado, etc.). We'll likely see a steep-ish correction in "second-tier" markets, like the ones in Texas, Tennessee, and the Rust Belt (Pittsburgh comes to mind).
I own today, but I'm well ahead of most of my peers that bought houses right out of college.
As for investing: you invested what you had left after rent, but you didn't invest what you paid in rent. With a mortgage, you are investing the mortage payment minus interest, and you can still invest what you have left.
I'm observing rents way, way below mortgages, but it's very location dependent.
When making decisions about where to put my money, I stopped worrying about what other people are going to do and are doing, what the market might do, etc, and instead think what makes _sense_ for me to do. If some expense makes sense for me, offers good value, etc, independent of attempting to prognosticate the future, it probably does for others as well and the investment will probably work out fine. If it doesn't, it doesn't matter, it still made sense for me to do it.
For me, this has meant buying a house when lots of my peers were running scared at what turned out to be the bottom of the housing market, selling one recently, and renting for the moment. In each case, this was just the cheaper and 'sensible' approach. I think people overcomplicated this stuff.
How does the math work in the Netherlands?
Interest rates used to be lower so the mortgage used to be much cheaper.
But in a different financial environment, maybe a few years from now, your expectations might be different and the math works out differently
A bit odd that you talk about liquidity. The house itself isn't liquid, but you finance it so you don't need a huge liquidity up front. Also, rents paid are no longer liquid to you either.
A mortgage ends one day. Rents do not.
House prices increase 20% year on year in Amsterdam. Even during the 2008 financial crisis did they barely drop in value.
Just wait until you see how much is wasted in a 30 year loan. These decisions often comes down to life style.
Barbell investing from Taleb makes the most sense to me. Cap your downside, go balls out with the rest.
And prioritize long-term assets over cashflow. Revenue generating assets are best.
This doesn’t mean anything to me. Can you elaborate? Also, why are revenue generating assets better, and doesn’t pursuing revenue generating assets imply prioritizing cash flow? Sorry for the noob questions.
Taleb elaborates better in his very accessible book(s). The basic idea is to invest/use most of your net worth in “safe” investments, those primarily keeping up with inflation or just barely beating it. If shit hits the fan, you have a cushion to fall back on.
Anything beyond keeping you safe and comfortable enough should go chasing the highest returns possible. So you can partake in as much upside as possible.
Startup comp follows this logic. Enough salary to fund your life and basic savings, equity to chase high upside.
Revenue generating assets are nice because you don’t just need to sell for a higher price to make a return. They have intrinsic value. For example owning a profitable business or a rental property.