In addition to expensive valuations, with the S&P 500 trading at about 22 times forward earnings, another concern for the stock market is quietly raising red flags: American households now have more net worth in stocks than in real estate.
On the surface, this may not sound alarming. After all, stocks have been moving higher since 2020, except for 2022. Stocks have significantly outperformed real estate over the past few years, especially after the Federal Reserve began raising interest rates aggressively. However, I believe housing affordability has improved due to the bull run in the stock market. Just look at your own stock portfolio.
When an asset class performs better over a longer period of time, people will allocate more capital to it, consciously or unconsciously. Retirement account growth. Brokerage accounts swell. Equity compensation vests. By comparison, real estate is illiquid, capital intensive, and even less exciting during periods of high interest rates.
That said, I now find commercial real estate attractive relative to stocks, which is why I am slowly dollar cost averaging into private real estate opportunities. When sentiment is bad and capital is scarce, expected future returns tend to be higher. It’s rare when everyone is ecstatic.
Concentration risk rises
When households hold more net worth in stocks than in real estate, we should pause. Concentration risk is important. The higher the concentration in an asset class, the more fragile market sentiment becomes if prices start to fall. It definitely feels like 1999 all over again.
As more and more capital is tied to stocks, any meaningful correction has the potential to become more violent. The loss hits even closer to home. People are checking their balances more frequently. Panic selling becomes more likely, not because fundamentals suddenly collapse, but because fear spreads faster when the stakes are higher.
Capital flows are important. When there is more money in a stock, there is more money available for sale. This dynamic tends to amplify downward market movements, especially when leverage, margin debt, and passive investment vehicles are involved.
Compared to selling real estate, selling stocks is cheap and almost instant.
Ominous signs for the stock market
If you look at historical data, households owned more stocks than real estate over the past two periods, and then stock investors experienced a long period of disappointment.
In the 1970s, the stock market stagnated in real terms as inflation eroded purchasing power. In the late 1990s and early 2000s, after the tech bubble burst, households heavily overweight stocks. What followed was the stock market’s “lost decade” from 2000 to around 2012, during which the S&P 500’s real returns were essentially zero.
History doesn’t repeat itself perfectly, but it does rhyme often and deserves respect.
It is human nature to pursue performance
It’s human nature to pursue what works. No one wants to miss out, especially after watching others get rich seemingly effortlessly. During bull markets, stocks offer liquidity, simplicity, and returns. Real estate can feel slow, annoying, and burdened with tenants, maintenance, and taxes.
But this is when discipline is most important—when investing FOMO is at its worst. Make sure you have appropriate diversification based on your risk appetite.
When a certain asset class dominates household net worth, future returns tend to be lower, not higher. Expectations rise. The margin of safety shrinks. Meanwhile, diversification has quietly eroded as portfolios shift toward areas that have seen the biggest gains.
This doesn’t mean the stock market will crash tomorrow. But no one should be surprised if they do.
I am adjusting my expectations and resisting the urge to aggressively chase gains at these levels. I am also intentionally allocating new capital to areas that feel less crowded, including private real estate, credit and select alternatives.
Why real estate still matters
There’s a reason real estate remains a core store of household wealth. It provides shelter, income, inflation protection and psychological stability. Even as prices have stagnated, people are still living in their homes. The rent still has to be paid. The mortgage still needs to be amortized.
In contrast, stocks provide no direct utility. They are purely financial assets whose value depends on earnings expectations, liquidity and sentiment. When sentiment shifts, prices can fall much faster than fundamentals justify.
That’s why it’s important to keep a balance. Emotional decision-making becomes more dangerous when too much wealth is tied to assets that can be instantly repriced.
Stock historical revision frequency
Given current valuations and household exposures, I wouldn’t be surprised if another correction of 10% or greater occurs over the next 12 months. All it takes is a catalyst. Growing panic. Wrong policy. Geopolitical shocks. Liquidity events.
There is nothing unusual about the correction. They are the price of long-term returns. But when concentration is high, the adjustment feels worse than expected. To put the declines in perspective, here’s how often they occur:
- 5% retracement: 2-3 times a year
- 10% correction:~once every 1-2 years
- 20% bear market: ~ once every 5-7 years
- recession: Once every 7-10 years
The solution is not fear. The solution is preparation.
Rebalance if necessary. Diversify intentionally. Build assets that provide cash flow and utility, not just paper earnings. Remember, when everyone is comfortable, the risks are often higher than they appear.
Shares are likely to continue moving higher in the short term. But when families already own more wealth in stocks than in real estate, they need to be a little more careful than the general public.
Readers, what do you think about the idea that Americans now hold more wealth in stocks than in real estate? Do you think this is a warning sign for stocks, an opportunity to buy real estate, or both? Today, roughly what percentage of your net worth is allocated to stocks and real estate?
Diversify your wealth beyond public stocks
If a family’s net worth in stocks has exceeded that of real estate, it’s worth asking a simple question: What happens if public stocks finally mean a comeback? During secular bull markets, concentration risk often feels invisible until it disappears.
For those who don’t want the hassle of owning and managing physical property, I’ve found Fund rises Become a compelling alternative. The platform allows investors to passively invest in a diversified portfolio of residential and industrial real estate, focusing on Sun Belt markets where valuations are generally low and where long-term demographic trends remain favorable.
With more than $3 billion in private assets under management, Fundrise offers real estate investments that are distinct from public REITs and stock-heavy portfolios — something I value increasingly as families move further toward stocks.
I have personally invested over $400,000 in Fundrise. They are a long-term partner of Financial Samurai, and with a minimum investment of $10, it’s one of the easiest ways to start diversifying beyond traditional stocks and bonds
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