*Standard Disclaimer: This is not financial advice and I'm not a financial advisor. This post is purely for educational purposes*
I'm so sick of hearing about the irrationality of the market, in particular high valuations. Here's why.
**Just plain less companies to invest in**
[There has been a significant decline in the number of publicly traded companies over the last 30 years, as in **cut in half**.](https://apolloacademy.com/wp-content/uploads/2024/03/030424-Chart.pdf)
At the same time, the combination of the rise of the 401k, passive investing, and zero-commission trading platforms for retail investors, there's more money than ever getting dumped into the market than ever.
Basic economics says there's less of something, but more people buying, price go up.
**Secure Act 2.0**
The Secure Act 2.0 also just went into effect, I'm surprised more of you haven't been talking about this. Starting in 2025, most new employer-sponsored 401(k) and 403(b) plans must automatically enroll employees at a contribution rate of at least 3%, increasing by 1% per year up to at least 10% (max 15%). People aged 50+ can also make larger catch-up contributions to their retirement accounts and those aged 60-63 can contribute an extra $10,000 per year (indexed to inflation).
There's also big changes to Roth accounts. If you earn over $145,000, catch-up contributions must go into a Roth 401(k) rather than pre-tax. Employers can also now match contributions to Roth 401(k)s.
Another big change was the age at which retirees must start withdrawing from retirement accounts was pushed from 72 to 73 in 2023, and will rise to 75 in 2033.
**What all this means**
- The rise of auto-enrollment in 401(k)s means more people buying stocks automatically without regard to price. This fuels momentum-driven rallies, especially in S&P 500 stocks.
- By increasing the RMD age, there will be fewer forced liquidations by retirees. This means the stock market retains more capital for longer.
- With higher contribution limits and expanded Roth options, trillions of dollars will continue flowing into equities, bidding up valuations.
- Since high earners are now forced to contribute catch-up money to Roth 401(k)s (post-tax), they may invest even more aggressively—knowing they won’t be taxed on withdrawals.
**What could stop all this, and why it won't happen**
- If rates stay high, bonds and other fixed-income investments become more attractive, pulling money out of stocks. BND is actually a good buy at the moment IMHO, given how steep of a discount it's going for. We're likely to see interest rate(s) hover between 3-5%, which makes the US insanely attractive for investors. Our economy will be the envy of the world for the next 10 years *at least*.
- If thousands of new companies go public (unlikely), it could create new places for capital to flow. There has been a company-creation boom over the past five years, but going public is an entirely different animal and we won't likely see the effects until 5-10 years from now.
- Trump could increase capital gains taxes or eliminate Roth benefits, reducing the appeal of equity investments. I could also turn into a fucking pterodactyl, which seems about as likely.
**Conclusion**
The markets can remain irrational longer than you can remain solvent. Targeted shorts will remain good buys, but I guarantee that you people don't have the expertise to actually make smart buys. Ride the sentiment wave, and the wind is blowing in the direction of the S&P 500.
**How I'm investing**
- My 401k and HSA are fully invested in a Vanguard target retirement date index fund, this is my rock.
- Me and my spouse's Roth IRA's are invested in ETF's that I use to add a bit of diversity, with still using my target date retirement fund as a benchmark.
Ticker | Allocation
------|----------
RSP | 28%
SCHD | 23%
DGRO | 18%
VNQ | 5%
GLD | 5%
BND | 8%
VXUS | 13%
I like this portfolio because it prioritizes strong total returns with core holdings like RSP (equal-weight S&P 500) which takes away a bit of risk given how heavily the market is weighted with tech at the moment. SCHD (high-quality dividends) and DGRO (dividend growth) ensure steady capital appreciation and income. International exposure (VXUS) adds global diversification, while VNQ (real estate) and GLD (gold) provide inflation protection and alternative assets that reduce correlation to the broader stock market. Finally, BND (total bond market) stabilizes the portfolio, cushioning against volatility and offering a well-rounded approach to long-term wealth growth.