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Short Summary
Main recommendation: Keep an emergency cash reserve, invest about 85% of spare money consistently into an S&P 500 index fund through dollar cost averaging, and hold for the long term without panic selling. Graham Stephan says he is avoiding new real estate purchases in 2021 because prices are high and inventory is scarce, while putting the remaining 15% into individual stocks, startups, and a small amount of crypto.
Key Points
- Stephan says we are currently in a "K-shaped recovery," where some sectors and people saw income and wealth rise while others, on the lower line of the K, saw incomes dry up and businesses fall apart.
- Low interest rates pushed real estate prices up, while a shortage of listings and slow, costly construction kept supply tight.
- He says he personally believes interest rates, not just prices, are the biggest risk to real estate, since a higher rate can keep monthly payments similar even as prices fall.
- He says stocks can stay irrational longer than an investor can stay solvent, so he ignores short-term noise over a horizon of more than 10 years.
- He treats startup investing as extremely risky, expecting most bets to fail and accepting that possibility by setting the money aside mentally.
Details Worth Noting
- Concrete instructions:
- Keep a cash reserve as peace of mind for unexpected events.
- Put about 85% of stock market money into an S&P 500 index fund, buying automatically on a regular schedule regardless of price, including at all-time highs.
- Put the remaining 15% into individual stocks you believe in long term, keeping the position small because of volatility (he currently favors solar and green energy companies), plus startups or other business opportunities, and a small slice of crypto (about 1% in bitcoin and ethereum).
- If buying real estate, wait for the right deal where the numbers make sense, hold at least five to eight years, and prioritize cash flow over home value appreciation.
- Do not panic sell during market declines; stay the course and keep buying.
- He says he owns eight properties in Los Angeles and Las Vegas, worth about $8.5 million, bought over the past 10 years, and that he personally doesn't plan to buy new real estate this year.
- Angel investors often back 25 to 50 companies expecting one or two to succeed, and he notes that startups are nearly impossible to exit early.
- He gives an example that a $200,000 mortgage at 4% has about the same monthly payment as a $242,000 mortgage at 2.5%, illustrating how rates affect affordability.
- He says that last year he invested in about three dozen individual stocks and an S&P 500 index fund, and that his portfolio is up more than 50% since around April-May 2020, which he attributes partly to luck.
Bottom Line
Stephan's plan centers on steady, automatic index investing and a cash buffer, with a small high-risk slice for speculative bets, rather than trying to time the market or chase real estate deals in a high-price environment.
