Beyond expensive valuations, with the S&P 500 trading at roughly 22 times estimated forward earnings, another concern for the stock market is quietly flashing red: U.S. households now have more net worth in stocks than in real estate.
On the surface, this might not sound alarming. After all, the stock market has been ripping higher since 2020, aside from 2022. Stocks have dramatically outperformed real estate over the past several years, especially after the Federal Reserve began hiking interest rates. As a result, I argue housing affordability has improved thanks to the bull market in stocks. Just look at your own stock portfolio.
When one asset class performs better for longer, people tend to chase, whether consciously or not. Retirement accounts grow. Brokerage accounts swell. Equity compensation vests. Real estate, by contrast, is illiquid, capital intensive, and much less exciting during periods of high interest rates.
Concentration Risk Rising
When households hold more of their net worth in stocks than in real estate, we should pause. Concentration risk matters. The higher the concentration in one asset class, the more fragile sentiment becomes if prices start to fall. It sure feels like 1999 is returning.
With more capital tied to stocks, any meaningful correction has the potential to feel more violent. Losses hit closer to home. People check their balances more often. Panic selling becomes more likely, not because fundamentals suddenly collapsed, but because fear spreads faster when there is more at stake.
Capital flows matter. When there is more money in stocks, there is also more money that can be sold. This dynamic, plus an increase in margin debt, tends to amplify market moves on the downside.
Compared to selling real estate, selling stocks is cheap and almost instant.
The Ominous Signal for Stocks
If you look at historical data, the last two periods when households owned more stocks than real estate were followed by prolonged periods of disappointment for equity investors.
In the 1970s, stocks stagnated in real terms as inflation eroded purchasing power. In the late 1990s and early 2000s, households became heavily overweight equities following the tech bubble. What followed was a “lost decade” for stocks from 2000 through roughly 2012, during which the S&P 500 delivered essentially zero real returns.
Chasing Performance Is Human Nature
It is natural to chase what has been working. Nobody wants to miss out, especially after watching others get rich seemingly effortlessly. Stocks are liquid, easy, and rewarding during bull markets. Real estate feels slow, annoying, and burdened with tenants, repairs, and taxes.
But this is exactly when discipline matters most – when investing FOMO is at its highest. Make sure you are properly diversified based on your risk appetite.
When an asset class dominates household net worth, future returns tend to be lower, not higher. Expectations rise. Margins of safety shrink. At the same time, diversification quietly erodes as portfolios drift toward what has already gone up the most.
This does not mean stocks are about to crash tomorrow. But nobody should be surprised if they do.
I’m tempering expectations and trying not to sell too many Treasuries to buy stocks at these levels. But after every correction, it’s hard to resist! In fact, the reason why I wrote this post is to help me maintain asset allocation discipline because I have a history of not doing so.
Why Real Estate Still Matters
Real estate remains a core store of wealth for households for a reason. It provides shelter, income, inflation protection, and psychological stability. Even when prices stagnate, people still live in their homes. Rents still get paid. Mortgages still amortize.
Stocks, by contrast, provide no direct utility. They are pure financial assets whose value depends on earnings expectations, liquidity, and sentiment. When sentiment turns, prices can fall far faster than fundamentals justify.
This is why having balance matters. When too much wealth is tied to assets that can reprice instantly, emotional decision making becomes more dangerous.
I now find commercial real estate highly attractive relative to stocks, which is why I am slowly dollar cost averaging into private real estate opportunities. That said, I recognize how unsexy real estate can be right now. But maybe that's actually what we need.
Historical Correction Frequency In Stocks
Given current valuations and household exposure, I would not be surprised to see another 10 percent or greater correction in the next 12 months. All it takes is one catalyst. A growth scare. A policy mistake. A geopolitical shock. A liquidity event.
Corrections are not abnormal. They are the price of long term returns. But when concentration is high, corrections feel worse than expected. To put declines into perspective, here's how often they happen:
- 5% pullbacks: 2-3 times per year
- 10% corrections: ~every 1-2 years
- 20% bear markets: ~every 5-7 years
- Recessions: every 7-10 years
The solution is not fear, but preparation.
Diversify intentionally. Build assets that provide cash flow, not just paper gains. And remember that when everyone feels comfortable, risk is often higher than it appears.
Stocks may continue higher with continued AI mania. But when households already have more wealth in stocks than in real estate, it pays to be a little more careful than in the past.
Readers, what are your thoughts on Americans now holding more wealth in stocks than in real estate? Do you see this as a warning sign for stocks, an opportunity to buy real estate, or both? And roughly what percentage of your net worth is allocated to stocks versus real estate today?
Diversify Your Wealth Beyond Public Stocks
If households already have more of their net worth in stocks than in real estate, it’s worth asking a simple question: What happens if public equities finally mean revert? Concentration risk tends to feel invisible during long bull markets, until it doesn’t.
For those who don’t want the headaches of owning and managing physical property, take a look at Fundrise. The platform allows investors to passively invest in diversified portfolios of residential and industrial real estate, with a focus on Sunbelt markets where valuations are generally lower and long-term demographic trends remain favorable.
With more than $3 billion in private assets under management, Fundrise provides exposure to real estate that behaves differently than public REITs and stock-heavy portfolios, something I increasingly value as households tilt further toward equities.
Fundrise is a long-time partner of Financial Samurai and I'm an investor in Fundrise products. With a $10 minimum investment, it’s one of the easiest ways to start diversifying beyond traditional stocks and bonds
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Sam, you mention REITs often, but I haven’t seen you talk about MLPs or CEFs very much which often provide higher yields and superior returns. Do you avoid those products or have any favorites?
I’m unfamiliar with them, so don’t write about them. Care to write a guest post about them and educate us? If so, I’d love to have it. Cheers
I’m not knowledgeable enough to do that. Wish I was!
Great charts, thank you so much. I agree it just takes one shock to the system, especially when hints of warnings in the data are occurring. Proceed with caution is all I can say. It will be interesting to see what happens in the future.
We have not had a recession since 2008-2011. That’s a 15 year bull run with some quick corrections but no sustained economic downturn. I’m blown away the economy has held up as well as it has but my view comes from coastal Orange County, CA where there appears to be never ending source of capital. Residential real estate, while wonky, remains strong but on the commercial side (commercial broker) we’ve seen 8 quarters of decline in warehouse activity. Brokers are feeling optimism, increase in big box tenant activity, but I feel if we see a significant stock market pull down, the rich stop spending and the chain reactions begins.
We bought our house in 2013 have have been saving/capital preservation to keep it as a rental. I’ve been far too conservative with that money in fear of a downturn (huge mistake) and while I feel I have a significant downpayment, which is more than we paid for our original house it’s astounding that starter homes start at $2.5M. With any move I’d 3X my cost of living. I’m definitely not putting that money in the market now, sticking to treasuries with falling yields.
I will look to trim some positions in the first quarter, mostly my gold/silver miners as they’ve been on a tear. One more reason for my bearishness; the precious metals appear to be signalling something not good is coming.
Great charts Sam. I’m a Fundrise fan too. I’m curious, do you have much publicly traded REIT exposure? It seems to me, that it could be one of the more exciting asset classes currently. Of coarse, selection matters
After discovering Fundrise from your blogs, and based on your recommendations, I have been slowly building something with them in Real Estate and AI.
I also deployed a play money in RealtyMogul. A sum that I could afford to lose and not drag my family to streets. After a dismal performance, I have done a repurchase. I should correct myself to say “I have attempted”. Because, their quarterly payment schedule after adhering to SEC rules is pathetic. It looks like I might need 8 years to just get back my paltry investment. I understand the lock-in period of five years. But then additional years after the lock-in is what concerns me now.
I have invested a whole lot in Fundrise, and now I am getting concerned about withdrawal from there. I am pondering if i should continue to build up, or just suck it up and invest in public REITs.
As of 11/30/25, our NW is 50% RE (primary @ 23%, vacation @ 5%, rental @ 22%), 33% stocks, 6% bonds, and 10% cash. FS-FR Score = 49, but I haven’t re-valued our vehicles (2017 Honda CR-V LX and 2024 Subaru Outback Premium Trim with Option 13) for quite some time. (Prior to the Subaru purchase in March 2024, our FS-FR Score = 113.)
As a retired couple, we’ve purchased stocks for dividend income to replenish the withdrawals from our tax deferred accounts. While one of us worries how the market is doing, and whether or not we should sell, the other one of us figures as long as our holdings don’t cut their dividends, we don’t need to sell. ;)
I had never thought about the overall household split between real estate and equities. I frequently consider my personal split, but maybe blinders caused me to not look more broadly.
My overall split is roughly 1/3 in Real Estate and 2/3 in Equities/Bonds/Cash. The thing that is interesting to me is that my assumption would have been that I was much more long in real estate than most, so it was interesting to see that the overall split is closer to 50/50.
My guess is that the average in the US is higher in Equities when compared against a Global split. It would be interesting to see the US split between Domestic and International.
This is a good reminder for me. One of my goals is to monitor my allocation more closely and to increase my investment diversity. I’ve been getting more and more overweight large cap stocks to my target allocation. Time for me to reevaluate. Thanks or the reminder!
Is there any evidence that CRE has ever recovered from the pandemic? Where I live depends mightily on state workers and the downtown still has yet to recover in spite of many coming back (or being forced back).
I suppose some areas will always do well, but CRE collectively seems like a long term money sink. Ironically, one of the people who has suffered greatly from this is Dave Ramsey, with his huge event center that he can never fill.
Not recovered fully at all, but slowly inching its way back. There are transactions being made in office CRE at enormous discounts. I have to imagine in 5-10 years, some of these buys today will like like steals.
CRE is just so slow compared to stocks. So either stocks have to correct or rates have to come way down for CRE and real estate to start catching fire again, nationwide.
See: The End Of The Commercial Real Estate Recession
Commercial RE markets are as local as residential RE. Real estate developers are a lot like gamblers, addicted to risk. They make bad bets all the time. So there is a lot of meat for vultures to pick over. I like Fundrise CEO Ben Miller because he has been involved in build and development. Listening to him on podcasts, he can clearly explain why he has backed out of certain JVs and unapologetically pivots towards alternate investments, like the Venture fund.
At the risk of “it is different this time
” I will make several observations.
OF course, allocation is important. I will always be about 60/20/20 at my age. But I have been doing this since 1990 and it does seem a bit different – especially the psychology of corrections. With each correction there seems to be less panic selling as much as panic buying in trying to get in at the bottom. Selloffs are looked at more like an opportunity.
Just IMO.
Great points. And I agree with all of them actually. I find solace knowing big tech are huge cash flow generators with enormous balance sheets. And the amount of liquidity on the sidelines and further 401(k) participation rates should help.
What is the 60/20/20 made up of? Stocks, bonds, X?
I would say the panic selling and buying is more pronounced today, with far quicker selloffs and recoveries, e.g. March 2020.
60% stocks – about 50% in VTI and SPY and 40% large cap individual stocks across several sectors; 10% IWM.
20% bonds – medium and long term treasuries at about 4% and various coupon rates; and Vanguard Muni Bond Fund
15% Cash – short term treasury ladders and MM funds.
5% – some commodities and BTC
This is allocation of liquid assets but do have a paid off home which is RE asset but I don’t consider it as part of NW. Stocks are my growth engine as I’m a couple years from retirement.
Another reason why I love this group of followers! So fair, so educated and not so angry about our country. Great points in your response btw!
Hi, great talking points that you raise. To be fair, if you have been doing this since 1990 you may remember very similar points being raised in the late 90’s before an 85% collapse in the NASDAQ and an entire decade of zero real return, as Sam eluded to. What measures of valuation do you use? Or is this based on subjective and qualitative measures? For example, you are pointing to a 2 year span from 2022-2023 of flat returns. This certainly would not qualify as a correction. Dating back to the 2009 bottom, we have averaged north of 15% returns. As we sit today, valuations are at their highest point in history, higher than 1999/2000. It seems like you have a lot of thoughts about the market, I would point you toward John Hussman. He is very thoughtful about the market but instead of qualitative input and opinions he bases everything on historical data and has some very enlightening charts.