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2018 Investment Outlook For Stocks, Bonds, And Real Estate: The Last Easy Year

Financial Samurai Investment Outlook For 2018Before you read my investment outlook for 2018, you must first understand my financial situation and my biases. Our biases often warp our reality by anchoring us to past situations.

  • Permanently left work in 2012 at the age of 34
  • Net worth got crushed by ~35% in 2008-2009
  • Small business owner who will benefit from the new tax plan
  • New father with a spouse who is a full-time mom
  • Favorite asset class is real estate with three physical properties in CA, one in HI
  • Worked in equities for 13 years at a couple large investment banks
  • Have significant investment positions in stocks, bonds, and real estate

With this background information, I believe 2018 will be the last year of “easy money,” where assets remain relatively stable as they track historical returns. Let’s discuss each asset class in a little more detail.

Stock Market Outlook: One Last Hurrah

According to the U.S. Small Business Administration, small businesses account for 48% of national employment. In number, they represent 99.7% of all businesses in the country. In other words, it is the guy with the plumbing store or the gal with the digital online marketing agency who make up a massive part of the American economy.

Based on my interactions with other small business owners, everyone I’ve talked to is extremely excited about lower taxes and potentially less red tape. It’s really “less red tape” that most owners are looking forward to, and not so much the 20% deduction of qualified small business income.

As business owners, we hardly EVER feel the government is on our side because we’ve got to: 1) pay license fees, 2) pay special small business taxes, 3) pay both sides of the FICA tax, 4) pay an accountant to figure out our more complicated taxes, 5) wonder why we can’t collect unemployment after our business goes under, and much more.

With the passage of the new tax plan, there is finally hope the government is now on our side. Having a tailwind feels so much nicer than facing a headwind while climbing a hill – which is often what running a business feels like. As a result, I believe there will be a natural inclination to reinvest in our respective businesses and ultimately grow revenue. Higher revenue growth equals higher profits and higher company valuations.

Publicly traded companies are just a larger reflection of privately owned small businesses. And I think the mood in the boardroom is as bullish as ever with a 21% permanent corporate tax rate.

Stock market's history of bad things

When there is business euphoria, as there is now, valuations matter less. The chart below is the S&P 500 Case Shiller P/E ratio as of January 2018. Instead of investors now thinking 33.27X is too high, investors are now thinking there’s another 10X multiple higher to go until we reach 2000 peak bubble levels.

Investors aren’t really thinking we’re going to get to 44X, but it’s nice to know we still have this historical valuation buffer before everything blows up. After all, corporate cash balance sheets are massive compared to 2000, rates are accommodative, taxes are lower, and earnings are still growing.

Given we’re now in the final stages of a blow off where it’s liquidity, excitement, and FOMO driving the markets, I expect to see the S&P 500 breach 3,000 in 2018. If we get back to 2000 peak level valuations, we’re talking ~3,600 on the S&P 500, which ain’t going to happen. I expect downside risk of 10% for an even risk / reward ratio. I’m buying the dips.

Related: The Proper Asset Allocation of Stocks And Bonds By Age

Bond Outlook: Lower Interest Rates Forever

I’ve said this before, and I’ll say it again: we are in a permanently low interest rate environment. The 10-year bond yield has been going down since the late 1980s due to information efficiency, globalization, and policy efficacy. I expect interest rates to remain accommodative for the rest of our investing lives.

For 2018, I’m looking for another sub-3% level for the 10-year bond yield, and more likely an average of 2.6%, despite a couple more Fed Funds rate hikes expected this year. In other words, I expect bonds of all types to at least provide a total return equal to their coupon return as principal values hold rock steady. 

With the Fed raising the short end, and longer term rates staying steady, the yield curve is flattening. Historically, a flat or inverted yield curve portents an imminent recession as higher rates on the short-end choke off credit growth, make existing credit more expensive and curb excess reserves, thereby slowing the economy.

Flattening Yield Curve

But if the Fed is really going to cement itself as an inflation fighter, then this belief gives confidence for bond traders to invest in longer duration Treasuries at lower yields because no accelerated inflation is expected. Hence, I’m confident investing in 20-year municipal bonds that pay a 3.5% – 4% tax free yield for the low risk portion of my net worth.

We will know the end is near if the Fed raises the Fed funds by 1% and the long end remains flat. That’s when inversion occurs and should have enough time to reduce our risk exposure by then. I expect downside risk of half the coupon bond yield. I’m buying muni bonds whenever the 10-year bond yield goes above 2.6%.

Related: The Case For Bonds

Real Estate: A Tale Of Two Cities

Remember how I said in June 2017 that the rental market was soft in San Francisco due to a large supply of new condominiums and nose-bleed level rents that far outpaced wage growth? From 2H2015 to May 2017, I rented out my house for $8,800 – $9,000/month.  When I tried to get prospective new tenants to pay the same rent in May 2017, I got zero takers, despite aggressively marketing the house for 45 days. The best two offers I got were for $7,500 from a divorcee with an unstable startup and from a family of six with a dog. So, instead of going through the pain of continuing to be a landlord, I sold the house for a little over 30X annual gross rent.

The numbers are finally showing up in the data. Check out the rent prices for one bedroom and two bedrooms in December 2017 according to Zumper. If there was a three bedroom segment, I’m sure the numbers would look even weaker. Like stocks, real estate prices should trade on earnings fundamentals. With a decline in rent in so many of the most expensive cities and new negative tax laws in effect, real estate prices should remain weak in the most expensive markets.

Major City rental market price changes from peak

Take a look at NYC housing market data from Douglas Elliman. Sales volume and prices headed down in 4Q2017 as buyers took a wait-and-see approach regarding the tax plan. Now that the tax plan has passed, it is worse than most people expected due to the $10,000 SALT cap and the $750,000 mortgage cap for interest deduction.

NYC real estate market

Real estate investors should view NYC and SF as “leading indicators” of what should be expected for other expensive real estate markets. Now that prices are softening, you should be in no rush to buy. Be picky about what’s likely going to be the largest purchase of your life. Focus on location and expandability, the #1 way to increase your chances of making money in real estate. If you can build for $200/sqft and sell for $400/sqft, you win. And most of all, run the numbers to see if valuations make sense.

With the slowing of coastal city real estate, it’s only a matter of time before non-coastal real estate slows as well. But figuring out the timing of when the slowdown will occur and by how much is the biggest conundrum. Three to five years tends to be a good lag, so we can make an educated guess that between 2019 – 2021 is when the data will appear. Let’s just say 2H2020 to be more precise.

I don’t think there will be more than a 5% – 10% correction in coastal city or non-coastal city markets over the next couple of years because the economic engine is still quite strong. Further lending standards have tightened since the last financial crisis. Therefore, if you’re buying a home to live in for the long term, you should be fine.

Some folks have questioned the wisdom of my $810,000 investment in real estate crowdfunding outside of San Francisco. Understandable, given the absolute dollar amount sounds large. But I had a $2,740,000 position in a single SF property with a $815,000 mortgage where rents are declining. Therefore, I’ve reduced risk exposure while diversifying into 12 different non-SF properties where rents are stronger. Further, I keep my alternative investments to no more than 10% of my overall net worth and still have three California-based properties to manage.

Enjoying One Last Year Of Great Times

As a business owner, I haven’t been this bullish since 2007, when I got promoted to Vice President at my banking job. Of course a year later, shit hit the fan and I saw a 35% destruction to my net worth in a matter of months. If a downturn happens again, I’m better prepared because I’ve got far more passive income streams, a variety of defensive investments, and a much lower debt to equity ratio.

If one can get a 10% return in stocks, a 4% return in bonds, and an un-levered 5% return in real estate without much volatility, I say that’s pretty easy money. If I can get these types of returns, perhaps I’ll finally be satisfied with a blended 2% – 3% guaranteed rate of return in retirement.

If you haven’t done so already, run your investment portfolio through an investment analyzer to see what your latest exposure is to the market. Then carefully analyze your net worth composition and make sure you are comfortable with its construction. I wasn’t entirely comfortable about my net worth composition in 2017, but now I am for 2018.

Personal Capital Investment analyzer

Sample Investment Analyzer by Personal Capital

Readers, what are your thoughts about the stock market, bond market, and real estate market? How are you positioned for 2018? Please also share your background and biases. As always, do your own research and invest based on your own risk tolerance.


The post 2018 Investment Outlook For Stocks, Bonds, And Real Estate: The Last Easy Year appeared first on Financial Samurai.

Financial Samurai Goals 2018: Back To Early Retirement Life!

Financial Samurai 2018 Goals

My biggest disappointment in 2017 was pushing my mind and my body past their limits. At the age of 40, I no longer have the energy to do what I’ve been used to doing all my life, yet I worked more than I ever had before. I was a stubborn mule who couldn’t accept the fact that I had aged. As a result, I injured my ankle, back, elbow and quads.

I also had a breakdown one evening when I couldn’t put my son to bed after the third try at around midnight. Hearing my baby cry is a heart-stinging experience. After an hour and a half of singing and cradling, I gave up on giving my wife the rest she needed and texted her to relieve me.

I felt like such a failure. I had spent years building a lifestyle business in order to be able to be a good father. Yet I lost it because I was working way too much on the business instead of storing up energy reserves for the late night shift.

It was at this moment I realized that going down the path of full-time caretaker with my wife while also keeping Financial Samurai going at a fervent pace wasn’t going to work out. I was no longer my happy go lucky pleasant self. Here are some goals that will make life better in 2018!

Goals For 2018

1) Return to early retirement life. As this site has grown more people are reaching out for help or contacting me with business opportunities. It’s become overwhelming. No longer is Financial Samurai a casual, unknown site where I can say and do what I please.

I want to respond to everybody but I can’t. Therefore, I created a massive out of office e-mail with answers to my most frequent requests. But it was ineffective. One business partner e-mailed me on Dec 22, then again on Dec 26, then again on Jan 2. It’s good he’s hustling, but what happened to boundaries, especially during the holidays?

In 2018 two of my goals are to publish only 100 articles (from 175) and to start having more fun with the topics without stressing about the quality of the content. While the business component of this site is exciting, it has become too much. Just like with day job income, after you make a certain amount of business income, there is no more additional happiness. Instead, misery often ensues due to increased demands for your time.

Early retirement life is all about being carefree and only doing what I enjoy.

2) For six days a week, provide an average six hours of JOYFUL assistance to my wife. For the seventh day, provide four hours of joyful assistance for a total of 40 hours a week.

As a stay at home dad, I provided around eight hours of support a day to my wife in 2017. For example, I would always relieve her for 2-3 hours in the morning, depending on how difficult the night was so she could shower, go to the bathroom, catch up on reading, and do her own thing. Then I’d provide care for 2-3 hours in the afternoon, and another 3-4 hours in the evening.

After a while, I realized that a lot of my assistance was not 100% done with a smile because I was always tired and sometimes frustrated after having already worked so many hours that same day on the business. As a result, tension sometimes ensued. Thankfully, she started doing the entire night after the third month and things got better. And now that my publishing goal is 35% less, things should get even better.

Providing six hours a day of happy care is better than eight hours a day of grumpy care. I know I’m not alone with regards to relationship tension during the first year of a baby’s life. More than 80% of couples experience a huge drop (40% – 90%) in marital quality during the transition to parenthood. Research also says folks who are sleep deprived typically suffer a 91% loss in their ability to regulate strong emotions, while the decline in general cognitive skill is equally dramatic. Just think about how dangerous it is to drive drowsy.

3) Increase business productivity. In other words, find a way to do less and maximize my existing content to boost traffic and revenue. I will never spend more than four hours a day on the business in 2018. Further, I will cease responding to comment and e-mail questions whose answers are obviously discernible in the post and encourage readers to use the search box on my website for answers.

Financial Samurai on Quora

Not bad for 10 days of work over the holidays

With time freed up from not responding to obvious questions, I plan on building new readership by answering questions on Quora, a Q&A social platform. I’ve always known about the benefits of Quora, but never bothered to try until the Christmas holiday when a reader asked whether I was sleep deprived in my 2017 review post even though that’s what I wrote I was in my intro. Instead of answering his question, I responded to a question on Quora that ended up bringing in a lot of new traffic.

I plan on building up my authority on everything San Francisco, Real Estate, and Investing related. Even though I’ve lived in San Francisco for 17 years, own SF real estate, worked in finance, consulted for startups, and have this site, very few people in the SF media have reached out. If I can become a go-to resource, then productivity should increase.

After 10 days of trying, Quora has ranked me as a “Most Viewed Writer” in Real Estate and San Francisco. The ranking only lasts for 30 days, but I’m sure with consistency, the results will grow.

4) Spend more time doing work in the hot tubThrough voice dictation, I’m actually writing this post in my hot tub right now. Yeah baby! Not only am I utilizing my hot tub investment more, but I’m getting some stress relief while also producing work. Of course I’ll still have to do all the editing on the laptop, but this is a good way to really focus on living the early retirement lifestyle. Whenever I can knock out two or three things in one activity, I get very happy.

5) Aggressively spend more money on help. Until recently, we’ve always done all the lawn work, housecleaning, and childcare. There’s something therapeutic about gardening and cleaning. But now that we are tired parents, we need to prioritize! I really need help at this stage because my lower back is still tender. It’s kind of torturous to crawl around and chase a baby for a couple hours with a bad back.

Finally, I’m looking to hire someone who has a disability do some freelance work online. Roughly 15% of the world’s population, or one billion people experience some form of disability. Not only will this person get paid a fair hourly wage, this person will also gain some valuable insights about the online business world. Leave a comment with a brief intro about yourself with your e-mail address if interested.

6) Continue to help people of all types in different ways. This means publish two times a week, produce at least 30 podcasts, see my foster child mentee at least 24 times, coach high school tennis, and participate in more fundraising events. Actively helping others by getting involved in their lives is one of the best benefits of early retirement.

7) Stop feeling so damn guilty for not doing more. I have a tortured soul. Since I was 13, I’ve always had the belief that if I can, I must because a friend of mine died in a car accident and was never given the chance. But with this attitude, I feel a tremendous weight on my shoulders to be the financial provider and a caregiver for my son, even though my wife is a stay-at-home parent and we should have enough money.

I sought some advice about getting rid of guilt from a father who told me, “Raising a child is pretty easy if you can go away for 12 hours a day. Out of sight, out of mind.” In other words, he was suggesting that I find a day job like many fathers. But I don’t want to go that route.

Whenever I feel bad for not doing enough, I will remind myself that being able to provide my wife and me the freedom to take care of our son during his crucial first five years of life should count for a lot. There are many parents who reluctantly have to go back to work after 1-3 months.

8) Get regular physical checkups. One in three people will get cancer. And one in four people will die from cancer. The closest thing to curing cancer is early detection. However, most cancer is detected only after a patient feels symptoms. By stage three, only 8% of cancer patients live past five years. I bring up cancer because an old colleague of mine died of breast cancer at age 44. She leaves behind two children and a husband. I cannot imagine the pain of leaving Earth before I see my son grow up to be a strong and independent man who finds someone who loves him as much as we do.

As much as I hate full physicals, I will get one. And I will ask my doctor to do more blood work tests to see if they can find any anomalies. If I feel pain, I won’t be afraid to see the doctor. After all, I’m paying close to $700 a month for healthcare! Good thing I did some blood work in mid-2017 for my life insurance policy. After checking for 22 variables, the only anomaly was a slightly elevated cholesterol reading.

9) Find a way to grow net worth by $2 million. What’s a personal finance site without a concrete financial goal. With the estate tax threshold doubling to $22 million for couples, why not shoot for more wealth while taking things down a notch. The more you have, the more time and money you have to help other people. I assign only a 30% chance my investment returns plus savings will achieve this goal. Therefore, the only way to get a $2 million boost is if I invent something that takes off, get some kind of huge JV offer for my company, build a new revenue channel, or get really lucky with an investment. As always, I’ll be tracking my net worth closely to make sure my risk exposure is appropriate.

Excited About Early Retirement

One benefit about returning to the kick back early retirement lifestyle is that I’ll be writing more about early retirement. It’s really a wonderful stage that I think everybody should shoot for. It just didn’t last longer than a year for me due to my strong desire to maximize Financial Samurai’s potential.

2018 is the year I’ve been waiting for. To finally relax and be a present dad after spending so much time growing passive income and building a lifestyle business. Our little one is growing up so fast. We’ve got to cherish every moment. It’s highly likely he’ll be our only child given our advanced ages.

Here’s to letting go in 2018! May your money work hard for you so you don’t have to.

Readers, share with me some of your goals for 2018. How do you know when enough is enough regarding money and building a business? How are you able to let go and not maximize your potential? If you are a stay at home parent, how many hours of help do you get from your partner a day on average? 


The post Financial Samurai Goals 2018: Back To Early Retirement Life! appeared first on Financial Samurai.

Financial Samurai 2017 Year In Review: The Most Difficult Best Year Ever

Financial Samurai 2017 Year In ReviewHappy 2018 Everyone!

Since the year doesn’t really start until the second week of January, I’ve decided to spend more time reflecting. Hopefully you will too on a tropical island somewhere.

Before 2017, the best year of my life was when I got married on a cozy beach in Oahu. It was a simple wedding with only 16 family members in attendance. There was a gentle breeze that rustled the palm leaves while a ukulele player played Somewhere Over The Rainbow. The ceremony was simple, yet so beautiful.

No moment ever topped that day until our son was born last Spring. The birth went smoothly and I could finally breathe a sigh of relief both mama and baby were safe and healthy. We feel so blessed to have him in our lives.

Despite all my preparation, I still underestimated how difficult it would be to work 15 hours every day for months on end. I worked in banking where 15 hour days were the norm. But even in banking, we got at least one day off a week. Further, nobody works every single minute they’re at work. With parenthood, one look away could spell disaster.

Constant sleep deprivation killed my mood. No longer did I have the desire or creativity to spend several hours writing a post. No longer did I have the patience to deal with annoying people. Yet we had to forge on like all newborn parents do to make sure our baby was properly cared for.

If it wasn’t for my wife, we wouldn’t have a precious son. And if it wasn’t for my wife, there would be no Financial Samurai because she started taking over the entire night after he was three months old. Therefore, I thank my wife for everything she has done and apologize for all the times I was unpleasant. She is the sweetest, loveliest, kindest person I know who deserves a partner who always treats her well. I will do better. I promise!

Financial Samurai 2017 Year In Review

When I re-read my goals for 2017 post with the theme, “Always Be Grinding,” I was surprised to read how enthusiastic I was, yet I didn’t take any outsized investment risk. In fact, I took risk exposure down by 17.5% after selling a rental house. It was the classic believing in one thing, but taking no corresponding action.

Here’s what I wrote in the beginning of 2017:

I haven’t been this excited since I first got a job out of college when the sky was the limit. For the past 10 years or so, I’ve been questioning what’s the point of working so hard if the government is just going to take more from us than what we’re able to keep. To finally get some potential tax relief is thrilling!

Despite my excitement, I didn’t pile into stocks because I’m always skeptical of what politicians can accomplish. Instead, I invested $250,000 in a real estate crowdsourcing because I believed the Red States would benefit from a Trump presidency and invested just $41,000 in stocks for 1Q2017 out of $611,000 total.

But what I did do right was focus on my largest asset, which is now my online business. I upped production in the first quarter and saw a 48% rise in revenue and an even larger increase in operating profits due to the beauty of fixed costs. Operational leverage truly is one of the best reasons for running an online business.

Despite only seeing a 15.87% return on my public investments for 2017, my online business more than made up for the slack. If you can consistently grow your most valuable asset at a faster pace than every other asset class over the long term, I dare say you will one day do your family proud.

Here’s a review of the specific goals I made in 2017.

Business Goals

1) Focus on growth by broadening the audience. I’ve received plenty of feedback that I need to write more for the mass market. Even though my advice holds true whether you have $1,000,000 to invest or $10,000 to invest, readers have told me they can’t get their heads around larger numbers.

Failed. I tried my best to write more about budgeting and savings, but I only ended up writing five new posts on this topic out of 175. Two of the posts probably don’t even count: Stop Frugality From Leading To Lifestyle Deflation and Millennial Avocado Toast Analysis. The only post I feel can help the mass market is: Housing Expense Guideline For Financial Independence. I doubt my audience broadened very much, but at least traffic grew by 20%.

2) Publish a new ebook by July 18, 2017. Despite the rise in interest rates, it still takes a gargantuan amount of money to generate $1,000 a month in passive income – we’re talking $300,000 in capital at a 4% gross yield.

Failed. I worked with several folks to put together a Financial Samurai real estate book in the first half of the year, but lost steam once my baby was born. It’s still a no-brainer to produce online products once you’ve developed a brand and a following, but time is at a premium. 

Related: Ranking The Best Passive Income Investments

3) Focus on three business partnerships. I’ve got about 10 business partnerships with Financial Samurai right now. As the main writer and business development guy, it’s very easy to get spread too thin. So I need to focus.

Failed. I worked on developing a better relationship with two business partners, but not three. I’m not sure what the right business partnership is for my new category: family finances. If there are any business out there who want to make me a pitch, I’m all ears. My goal is for each product to provide maximum value at minimal to no cost, just like this site. 

4) Send two to four e-mails a month. I’ve been paying $150 a month to send out only one newsletter a month for the past couple of years. What an underutilization of resources. I plan to write shorter, punchier e-mails to connect with all my newsletter subscribers.

Passed. I averaged sending 2.5 newsletters a month for the year. I’ve done a poor job growing my e-mail subscriber list compared to the amount of traffic I get for this site. It’s probably because I just don’t care for selling anything to anybody.

Personal Financial Goals

5) Create a million bucks of wealth. My goal in 2016 was to grow my net worth by $500,000 because I had a neutral outlook. Given I’m now bullish on my business, it’s only logical to shoot higher.

Passed. With the way most asset classes have performed this year, it wasn’t hard to generate a lot of wealth, especially if you’ve spent 20 years accumulating a financial nut large enough to retire on back in 2012. I received some interesting offers for this site for multiple millions of dollar, but I turned them all down. You should only buy, never sell a high margin, cash flow positive business that can be done anywhere in the world with minimal maintenance. 

Related: The First Million Might Be The Easiest

6) Invest at least $20,000 a month without fail. The $20,000 a month doesn’t have to be in the stock market. It can be in bonds, real estate crowdsourcing, private equity, private debt, or paying down a mortgage.

Passed. I ended up investing $39,609 of new money on average a month for a total of $475,319. At the same time, I was able to strengthen my balance sheet by adding around $450,000 in cash and paying off $916,000 in mortgage debt due to the sale of my rental home. 

Related: Investment Lessons From A Surreal 2017

7) Start earning $20,000 a month in passive/semi-passive income by year end. My passive income is currently averaging about $17,600 a month over the past six months. To increase my passive income by $2,400 a month, I’ve got to publish my real estate book by year end, market it well and update my severance negotiation book for 2017.

Financial Samurai Passive Income Streams

Failed. Since I didn’t publish a new book, I didn’t receive new passive income. In fact, my passive income dropped because I sold my rental home that was generating over $60,000 a year net (rental property #3) and one of my CDs came due. With $800,000 invested in equity real estate crowdfunded projects, there is the potential to earn a 8% – 15% IRR in 4-5 years. With $600,000 invested in municipal bonds, I should earn $15,000 – $20,000 in after tax income a year. I’ll be updating my passive income numbers for 2018.

8) Spend like I’ll be dead within 10 years. I’ve been frugal my whole life. It’s one of the main reasons why I was able to hit the eject button at 34. But, I’ll be 40 in 2017 so it’s time to live it up for the second half of my life. You don’t have to be as stealth in middle age because people are more accepting of those who’ve spent 20+ years working.

Pass. I bought two big ticket items in 2017: 1) a $16,000 hot tub, and 2) a $58,000 vehicle in cash to keep the family safe with zero regrets. I don’t miss my Honda Fit, especially since it began having starter problems towards the end. Further, there is no way I would feel safe driving Baby Samurai in a hatchback. The hot tub is the best lifestyle investment ever. I average five hours a week soaking after tennis and softball. I can’t wait for the entire family to have fun talking story in the hot tub one day. 

Related: When Is It OK To Forsake Stealth Wealth And Spend Up?

9) Don’t chase the stock market. Although I’m bullish on my business, I’m lukewarm on the stock market and the economy due to valuations, political uncertainty, and the prospect of higher interest rates squeezing consumption.

Failed. I chased the stock market because I didn’t invest enough during the first half of the year. This was the first time in history the S&P 500 didn’t have a down month. At the end of the day, my public investments returned 15.78%, so the chasing wasn’t that bad. If I didn’t have a huge influx of cash during the summer after the home sale, my investments would look more balanced. 

Related: The Proper Asset Allocation Of Stocks And Bonds By Age

Personal Goals

10) Scare myself out of my comfort zone. I haven’t been personally challenged in a long time. With a portfolio of over 1,300 posts on Financial Samurai, I know with decent confidence that if I write 152 new posts a year, I should be able to grow traffic and revenue by ~10% a year if I do nothing else. But writing 2-4X a week is an easy goal to achieve.

Passed. I finally started the Financial Samurai iTunes channel, whoo hoo! Too bad it only works on mobile and tablets, and not on the desk top for some reason. In the future, I hope to have my wife join me on the podcast and interview other people as well. It’s hard for me to speak eloquently, but I know after one year of practice I will get better. 

11) Really make a difference in 12 people’s lives. At the end of the day, the best feeling in the world is when a reader sends a private e-mail or writes a comment that says how much a particular article or the site in general has helped them achieve their dreams.

Pass. I’ve received over 70 e-mails and comments from readers this year who said something nice about how a particular FS article helped them get their finances in order or improve their lives for the better. These are truly the most gratifying and motivating reasons why I continue to write so much. 

I also spent three months coaching high school kids tennis, which was awesome. We got to the district finals and achieved the best record in the school’s long history! The best moment was when a senior, who had never won a big match before, won a huge rubber match in front of his mom and he ran to give me a hug afterward. 

Finally, I finally became a foster kid mentor. It took about eight hours of training and testing, which is probably one of the reasons why more people don’t do it. But the training is important given how precarious and important the situation is to take care of innocent kids who find themselves in a suboptimal situation. I’ve seen my foster kid five times now, and taught him how to ride his bike with no hands. So priceless! I can’t share details, but he’s a wonderful boy who wants to be a YouTube Gamer. It’s awesome that he already knows that creating content is much better than consuming content! 

Financial Samurai Foster Care

Giving shakas after learning how to ride a bike with no hands – December 28, 2017 at 12:35pm

12) Start a family. My wife and I feel we’ve done everything we’ve wanted to do as adults. We’ve both engineered our layoffs. We don’t have the itch to travel much anymore. We have no desire to climb anybody else’s corporate ladder. After two years, our house is finally remodeled to the way we want. We have a digital business that allows us to be present for our child. Finally, we’ve developed a steady stream of passive income that should support a family of up to four.

Passed. I already knew my wife was pregnant when I wrote my 2017 goals, but you just never know until the baby is delivered. Based on research, speaking to hundreds of other couples, and personal experience, there are often complications that occur during pregnancy. If you’ve decided you want to start a family and have your finances in order, do not wait another day. 

Related: What’s The Best Age To Have A Baby? A Biological And Economical Analysis

Thanks Again For A Great 2017!

Despite all the craziness that went on in 2017, the one thing I will always clearly remember is the birth of our son just like how all I remember during the financial crisis was our quaint wedding.

It was hard to not only keep up the posting frequency on Financial Samurai, but to actually double production in order to buy more time in the future. This is where I really messed up because I didn’t maximize the purpose of our lifestyle business: to provide for a better life.

Instead of being so focused about protecting my family’s future by working so much, I should have spent more time enjoying the present. Life speed accelerates. Some changes will be made! Stay tuned for my 2018 goals and outlook post.

Readers, how was your 2017? What were your hits and misses?


The post Financial Samurai 2017 Year In Review: The Most Difficult Best Year Ever appeared first on Financial Samurai.

Investing Lessons From A Surreal 2017

Financial Samurai investment tracker full yearAt the beginning of the year, I decided to track my investments with a detailed spreadsheet because my cash flow was increasing and I wanted to make sure the money was being properly deployed based on my risk tolerance. If I force myself to think for hours about how to invest my money, hopefully I won’t rashly spend it on completely wasteful things such as a sports car that can’t fit a baby seat or a vacation property I’ll hardly ever use.

On the flip side, ever since the housing crash I’ve had a heightened fear of losing money, especially since I haven’t had a job since 2012. It takes around three years as an entrepreneur to feel confident you won’t starve on the streets, especially if you become a parent during the process. As a result, I tended to hoard cash, which is suboptimal in a bull market.

This post will go over my investment thought process by category for 4Q2017 and conclude with some investing lessons learned about the year. The goal of tracking our investments is to try and take full advantage of a bull market in a risk appropriate way. 

Financial Samurai 4Q2017 Investment Review

In summary, I mobilized a total of $2,263,319 into various investments in 2017. $750,000 of the $2,263,319 was invested in conservative investments (bonds, mortgage pay down, and home improvement) that should return 4% or more gross a year. The remaining $1,510,000 was invested in riskier assets with a target return of between 8% – 18%. My goal is to achieve a 10% total annual return, but will gladly settle for 8%.

The $2,263,319 invested was largely helped by a rental home sale in June 2017, which gave me ~$1,788,000 in proceeds ($2,740,000 sale price). Due to declining rents, expensive valuations, potentially rising mortgage rates, higher property taxes, potentially negative tax policy changes, PITA tenants, better investment opportunities, and less time due to a newborn, I thought it best to sell one of three properties in CA.

Overall, I reduced my risk exposure by $476,681 and increased my cash position by $450,000. Despite the decrease in exposure and increased balance sheet, I still have synthetic full exposure to risk assets due to $1,092,000 of remaining mortgage debt from my primary residence and vacation property rental.

Financial Samurai investment tracker

Real Estate

Because I wanted to see if I could find a winter property deal, I held onto a lot of cash. I found two homes that I liked, but the sellers wouldn’t entertain my low ball offers. I wasn’t even sure I’d be happy with the purchase even if they did accept my offer because of all the maintenance and tenant issues I’d have to deal with again. For example, one home had a serious leak in the garage that kind of gave me a little PTSD from all the leaks I experienced at my old rental house.

By Dec 1, I realized I was never going to buy another property in San Francisco again, so I decided to invest another $300,000 in the RealtyShares domestic equity fund after meeting up with the team again for dinner. Since the summer, the fund invested in a flex-industrial deal in Chicago MSA, a multi-family in Phoenix, a strip mall in Orlando MSA, and a multi-family in Canyon Lake, TX.

Although a total of $800,000 in real estate crowdfunding sounds like a lot, I view it as buying a $800,000 portfolio of 12+ different properties across the country at much lower valuations and much higher net rental yields compared to having $2,740,000 in one very expensive rental property in San Francisco that is now at risk of depreciating due to declining rents and new tax legislation that limits mortgage interest deduction and SALT deduction.

The next physical property I will buy will be a primary residence in Oahu. The plan is to move back to Oahu within the next five years before my son starts kindergarten. I really like the idea of buying physical property to personally enjoy, and then renting it out years down the road if you have the funds and the desire to move. If the rental experience goes well, I’ll keep the property. If not, I’ll sell it and follow my BURL real estate investing strategy.

Stocks: Bought The Dips

In October, I started getting excited about the potential passage of a tax plan that would lower taxes for large corporations and businesses like mine with pass-through income.

As a result, I invested more aggressively into stocks because I felt the market would respond favorably if the plan passed. Further, my desire to buy another property kept going down. Corporate earnings are estimated to get a 8% – 10% boost and small business with pass-through income might see an even larger gain.

The timing of this tax plan is fortuitous given I’ve spent 8.5 years building a lifestyle business that has now reached a level where it will benefit from tax changes. Nothing has made me more bullish than business tax reform, which is why I need to keep my emotions in check through this investment review process.

Finally, I superfunded my son’s 529 plan with $70,000 while his mom and grandma contributed $14,000 each. We figured this would be a good method to diversify contributions since once you superfund, you can’t contribute for four years. It’s good 529 plan owners have the flexibility to use the proceeds for grade school education now.

See: How The New Tax Plan Will Ruin Your Life If You’re Not Careful 

Bonds: A Positive Surprise

Bonds performed well in 2017 with the the long-bond index fund TLT up ~10%. My California muni bond positions are up ~3.5% + ~4.5% gross adjusted yield for a total gross gain of about 9%. Not bad given I was just looking for around a 4% gross gain.

US Long bond performance 2017

Once the 10-year bond yield gets back to its 12-month high of 2.6%, I’ll be looking to buy more bonds again. I see a 3% cap on the 10-year bond yield for 2018.

Related: The Case For Bonds: Living For Free And Other Great Benefits

Mortgage Pay Down

If you add on the $815,000 of mortgage debt I paid off by selling my rental house, I’ll have paid off a total of $921,000 of mortgage debt in 2017. It feels fantastic to have almost a million dollars less in debt, even if the interest rate was low. By consistently paying off random chunks of extra principal throughout the year, it was easy to pay down an additional $106,646 in principal.

I’ve still got about $1,092,000 in mortgage debt to pay down between my vacation property and my primary residence. I certainly don’t need so much cash, but I want to continue legging into risk assets just in case there’s some type of downturn or a change in my lifestyle.

My plan is to pay off my vacation property mortgage by 2023. I probably won’t pay off my primary residence within five years because I need as much cash as possible to buy our future dream residence in Hawaii.

Related: Pay Down Debt Or Invest? Follow The FS-DAIR Framework

Everything Else

I’ve committed $200,000 to my friend’s second venture debt fund. They’ve called $96,219 within one year. I expect them to call the remaining $103,781 by the end of 2018. The fund’s objective is to earn a 15% – 20% IRR. Based on the performance of his first fund, a more likely return of 10% – 13% should be expected.

It felt great not having to do any home improvement projects since 1Q because we now have a baby who requires precious sleep. Any disruption of sleep would have been infuriating for all of us since my wife and I were like zombies for the first three months.

Finally, out of the $611,000 in stock investments, $50,000 of that was in highly speculative investments that have surprisingly done well.

Related: How To Make Speculative Investments Without Losing Your Shirt

Main Lessons Learned From Investing in 2017

My biggest mistake was not being more aggressive investing in the stock market at the beginning of the year. I didn’t have as much liquid cash because I hadn’t sold my rental house yet, but it was the Trump presidency and high valuations that gave me hesitation. I wasn’t too hopeful about tax reform either.

My best move was selling a rental house for 30X gross annual rent before the SALT deduction got limited to only $10,000 and redeploying the capital in properties around the country trading at just 10-14X gross annual rent. Life feels so much better not having to deal with housing issues anymore. It’s also nice to worry less about natural disasters.

Here are several lessons from 2017 that may help you become a better investor.

1) Try to look beyond the politics and focus on fundamentals. Given I live in San Francisco, I know plenty of people who decided to pull much of their money out of the stock market at the end of 2016. They were so blinded by their hatred of Donald Trump that they missed out on huge gains.Generally speaking, deregulation and lower taxes are good for business, which is good for business investors. Further, in my mind employment was already on the upswing and interest rates would remain accommodative.

Unless our politicians actually reform laws, there is often a disconnect between how much investors believe our politicians can do and how much they can actually do. Reduce risk if you wish. But don’t get out of risk assets completely.

Kurt Eichenwald sold all his stock announcement on twitter

2) Real estate is an easier investment over stocks. How can this be when stocks just went up ~19%? Having to reinvest my home sale proceeds was exhausting. If I didn’t have weekly reminders to invest, I wouldn’t have because of the uncertainty of what to invest in, the timing of the investment, and the actual act of deploying capital. Every investment I make gives me a little bit of anxiety due to my fear of losing money and looking like a buffoon.

With real estate, despite the leverage, all you’re doing is enjoying your home or collecting rent checks (if you’re lucky). When you’re just living, you aren’t questioning every single investment you make. Therefore, for most people who are too busy to track the market, owning real estate over the long run is an easier path to wealth. Despite my terrible tenants, the $1 million of equity gain from 2012 – 2017 was the easiest investment money I’ve ever made.

If you don’t have enough money to buy real estate, then owning an S&P 500 index fund over the long term is fine too. Just know that the longer you rent, because of inflation, the longer you will regret your decision. Inflation is an unstoppable beast that will eat you alive.

3) Think in percentages over absolute dollars. Because I had never invested more than $500,000 a year in my life, having nearly $1.8M to re-invest was intimidating. But as soon as I started breaking the investment amount into percentages, deploying capital became easier.

Find out what each asset class is as a percentage of your net worth and calculate what each new invest is as a percentage of your investable assets and net worth. This exercise is particularly helpful for frugal people whose wealth has far outstripped their spending habits.

4) Stick to an investment framework no matter what. Once you’ve decided how much you can comfortably invest each month and what type of asset allocation is best for you, execute your plan without fail. It is almost always the case you will be surprised by how much you end up accumulating or how much debt you end up paying down over time.

Wrapping Things Up

Financial Samurai 2017 performance

Overall, according to the final weekly personal investment performance e-mail I get from Personal Capital, my public investments returned ~15% in 2017. I’m happy with the results because my total capital exposure is significant for how much we spend. Further, my goal after leaving work was to earn a 4% – 6% tailwind a year while I build a lifestyle business.

It’s really hard for me to take on more risk because of my fear of having either one of us go back to work during the crucial first five years of our son’s life. At the same time, I can’t help but want to take full advantage of the bull market while it lasts. The further I can run up the score, the bigger the buffer during the inevitable recession.

Finally, one positive surprise I experienced this year was that once I elongated my investment time horizon to 20+ years due to the birth of my son, I became much more at peace with my risk exposure. Surely by 2037, asset prices will be higher. To invest for someone’s future feels wonderful.


Investors, how did your public investments treat you in 2017? For those of you who have retired or reached financial independence, how have you structured your investments so that you can sleep well at night while also benefitting from the bull market? Graphic by https://ckongsavage.com

The post Investing Lessons From A Surreal 2017 appeared first on Financial Samurai.

The Top Financial Samurai Posts Of 2017

Best Financial Samurai posts for 2017Merry Christmas and Happy Holidays Everyone!

The best thing about hard work is when it’s over. Once finished, you can basically sit back and enjoy all of the rewards if you wish. And if you hustle long enough, you might positively change your life forever.

In 2017 I wrote 175 posts, averaging 3.3 posts a week. In addition I also published 173 pages, consisting of product reviews, random thoughts, and different spins on existing topics. Pages are public, they just don’t hit the homepage or got out in my feeds. Finally, I’ve got 36 pending posts in the queue waiting to be unleashed. All in, I averaged 7.3 posts a week.

My goal was to do as much as possible before our baby was born to buy time in the future to take care of him. Even though I don’t have a day job, writing a comprehensive article is easier said than done. And if you think it’s easy, I’d love for you to write me one that’s fully edited and ready to go. Further, the average stay at home parent spends 97 hours a week taking care of their little one!

Here are the most popular posts written in 2017 by traffic and some of the the most popular posts by traffic regardless of when they were written. My #1 goal is to help readers reach financial independence sooner, rather than later. Every single post was written based on first-hand experience because money is too important to be left up to pontification.

Overall, Financial Samurai received about 12 million unique visitors in 2017, which is better than a poke in the eye. 25 more years of this and I should be able to reach the entire population of America!

Most Popular Posts Written In 2017

Investing

The FS Investment Tracker Spreadsheet

Just Say No To Angel Investing

The Main Types Of Investment Risk Exposure To Be Aware Of

It Feels A Lot Like 2007 Again: Reflecting On The Previous Peak

Real Estate

Focus On Trends: Why I’m Investing In The Heartland of America

The Real Estate Investing Rule To Follow: BURL

Why Is US Property So Cheap Compared To The Rest Of The World?

Being A Landlord Tests My Faith In Humanity

Retirement

Retirement Savings By Age Show Why We’re So Screwed

Reflections Of Early Retirement Life Five Years Later

How To Calculate The Value Of Your Pension

How To Achieve The Two Spouse Early Retirement Dream

Maximum 401k Contribution Limit Finally Increases

Financial Independence

Your Chance Of Becoming A Millionaire By Age, Race, Or Education

The One Ingredient Necessary For Achieving Financial Independence

Financial DEpendence Is The Worst: Why Each Spouse Needs Their Own Bank Account

Debt Optimization Framework For Financial Independence

Housing Expense Guideline For Financial Independence

Entrepreneurship

How Much Can You Actually Make Blogging

The 10 Best Reasons To Start An Online Business

How To Create Next Level Wealth: When A Million Won’t Cut It

Career Grind

Abolish Welfare Mentality: A Janitor Makes Over $250,000 A Year

A $500,000 Redo: How One Couple Got Their Mojo Back

What If You Go To Harvard And End Up A Nobody?

A Severance Negotiation Success Story: The Inside Scoop On How One Man Negotiated His Freedom

Lifestyle 

Don’t Let Frugality Lead To Lifestyle Deflation

For A Better Life, Be The 1% In Something, Anything

The Safest Cars To Survive A Crash

What’s The Best Age To Have A Baby? A Biological And Economical Analysis

10 Most Popular Posts In 2017 Written At Any Time

Scraping By On $500,000 A Year: Why It’s So Hard For High Income Earners To Escape The Rat Race

How Much Savings Should I Have Accumulated By Age?

How Much Should I Have In My 401k By Age?

The Average Net Worth For The Above Average Person

How Much Income Do You Consider To Be Rich?

Examples Of Good Resumes That Get Jobs

How To Earn Six Figures At Almost Any Age

The Top 1% Net Worth Amounts By Age Group

The 1/10th Rule For Car Buying Everyone Should Follow

How To Get A Rich Man To Be Your Boyfriend Or Husband

A Slingshot Into The Future

I’m proud of the quantity, quality, and variety of posts published in 2017. My goal as always is to keep things fresh and interesting. I would die of boredom if I had to focus only on one subject. Life is full of different challenges, and my goal was to address as many of them as possible.

Who knows how long my creativity will last. I’m well aware that like the body, the mind will slow down. But in the meantime, I will continue writing about meaningful topics that affect all our lives. Feel free to mention any particular topics you’d like me to address in the future and any particular posts that stood out.

Up next will be my 4Q2017 investment review and my year in review post highlighting what went well and all the areas for improvement.

Thanks for reading and sharing my work. Besides bookmarking FinancialSamurai.com, you can keep in touch by subscribing to my posts via e-mail, my private newsletter, and my iTunes channel.

The post The Top Financial Samurai Posts Of 2017 appeared first on Financial Samurai.

How The New Tax Plan May Ruin Your Life If You’re Not Careful

How the new republican tax plan will ruin your lifeI firmly believe tax policy changes behavior. The higher your taxes go, the BETTER your life becomes! Why? Because at the margin, the less money you keep, the less motivated you’ll be to work. Since money is the root of all evil, the less time you spend accumulating evil, the happier you will be.

One of my catalysts for leaving work in 2012 was because the finance industry was in a structural decline. We were working longer hours for less pay. At the same time, we faced a progressive tax system where we had to pay a 39.6% Federal tax rate plus a 3.8% Net Investment Income tax plus a 0.9% Medicare tax plus an Alternative Minimum tax plus a 13% State tax plus Social Security tax plus Sales tax plus retroactive State taxes to pay for government overspending. Instead of complaining about paying a 60%+ marginal tax rate, I just negotiated a severance to make no money as a writer.

My life since leaving work has never been better, all because I decided to focus on maximizing freedom instead of maximizing net worth. When you’re in the grind, it’s hard to fathom the benefits of giving up a steady paycheck. But the benefits truly are incredible.

For those of you who naturally like to work more when you can keep more of your money, here are some items from the new tax plan that will ruin your life or your family if you are not careful.

Surprise Items In The Tax Plan That May Ruin Your Life

1) Your 529 plan can now be used for secondary education. Before, you could only use the proceeds of your 529 plan for tuition at an accredited four-year university. Under the new tax plan, you can now use $10,000 a year towards private grade school tuition.

I’m one of many parents who is still undecided about the wisdom of spending a fortune on private school instead of just having my son go the public school route. With the internet making education and meet-ups free, the value of a private school education has declined. Therefore, it makes little sense to spend record high levels on tuition just because you can afford to.

Once you start spending $10,000 – $60,000 a year on private grade school education, expectations for your kids go way up. When your expectations go way up, a pressure cooker environment may develop that suffocates the joy out of everyone. If your kid is especially sensitive to the plight of others, by going to such an expensive institution, he or she may feel tremendous guilt or pressure to perform. As a consequence, they might logically choose to work in a soul-sucking industry that’s focused on making as much money as possible to pay you back, instead of choosing an industry that’s focused on helping those most in need.

The new usage rules for the 529 plan may tip the scale in favor of sending your child to a private grade school. It’s one of those 20% off coupons that can end up costing you a fortune. What the new tax plan should have done was provide a tax credit or a deduction if you send your child to public school. The more parents focus on the public school system, the stronger it will become given there will be more involvement and more funding.

Doesn’t having your child learn the same material at public school, while saving $300,000 – $500,000 in private grade school fees and avoiding the stress of high expectations, sound wonderful? Not if the new 529 plan rules can help it.

Related: What If You Go To Harvard And End Up A Nobody

2) Miserable high income earners in expensive cities become even more miserable. I know I’ve done a poor job of highlighting the plight of HENRYs (high earners, not rich yet) living in expensive cities like San Francisco or New York, but that doesn’t change the fact that so many of these well-educated, 50+ hour a week, stressed out of their mind individuals are miserable. They see no end in sight to their grind because they don’t don’t build passive income and don’t work on a side business to give them an eventual escape outlet.

By capping state income and proper tax deductions at $10,000, residents living in high state tax and high property price cities are getting an uppercut to the chin. The annual property tax bill for a $1.5M median priced home in San Francisco is ~$19,300 a year. Add on $16,000 a year in average state and local income taxes paid, and you’re at $35,300. Your tax bill could easily be $5,000 more as a result.

Meanwhile the capping of mortgage interest deduction on a new mortgage amount of $750,000 means about $10,000 less in mortgage interest deductions in the first year of amortization. You can now add on another $2,000 to your tax bill.

One of the reasons why I sold my rental house, which I’d owned since 2005, is because of its onerous $23,000 annual property tax liability. I anticipated some type of detrimental tax law to pass given San Francisco is a sanctuary city in a blue state. But I just expected some type of reduction in the mortgage interest tax deductibility. To add the $10,000 SALT cap is a huge negative surprise.

New income tax rates for 2018

This new tax law may be the tipping point that causes a consistent net migration out of expensive coastal cities and into no state tax states or states that have a much lower cost of living. Coastal cities have turned into one big grind. Traffic is horrendous. Home prices are unaffordable. The cities are turning economically homogeneous. Even moving to the western part of San Francisco has not allowed me to escape the tentacles of the tech industry. My only next step is to move to Hawaii and deploying my BURL real estate strategy of investing in the heartland.

Related: Scraping By On $500,000 A Year

3) Estate tax threshold rises to $11 million for individuals and $22 million for couples. The easiest lifetime net worth target to shoot for is the estate tax threshold because nobody in their right mind would keep anymore due to the 40% death tax. When it was $5.49M per individual, it provided a high enough goal for most people to shoot for without feeling too discouraged that it was an impossible dream. While most people never accumulate $5.49M, they do get to a level where they can comfortable leave all their assets to their heirs tax free.

Now imagine you are one of those people who believes they’ll reach that $5.49M threshold before the age of 100 thanks to inflation, investment returns, diligent savings, and good financial planning. You are on cruise control gliding towards your goal of leaving a significant tax free estate to your heirs. Now, suddenly, you’ve been incentivized to figure out a way to work longer, harder, and take more investment risk to save $2.2 million in estate taxes ($5.51M X 40%) and get to the $11M target.

Of course any reasonably motivated person can’t help but gravitate towards killing themselves for more money. Further, there’s a good chance the estate tax threshold might change again in the future, thereby wasting all your time trying to get to a $11M net worth!

What many of you will now logically do is input some figures in a compound interest calculator and see what it will take to get to $11 million. Below is a realistic assumption I’ve provided where your $100,000 grows to $11,467,826 in 50 years if you earn a 6.5% annual rate of return and save $25,000 a year. Time to get to work, forever!

Estate tax calculator

Related:

The Benefits Of A Revocable Living Trust

Net Worth Targets By Age, Income Or Work Experience

The Only People Who Won’t Be Miserable

The only people who won’t be miserable under the new tax plan are those who are already rich. These are the people who are getting the most money back for just existing, even though they need the money the least.

As a result, the tax plan will make millions of regular income earners miserable due to the envy they have for those who already have the most. Even though the tax plan provides tax savings to the middle class and lower middle class, it just doesn’t feel right when some others get so much more.

I feel sorry for those people who decide they are now going to ruin their lives to earn more money they don’t need due to lower taxes. I wish everybody does start earning over $500K per year and accumulates over $11M per person in assets just to see that money doesn’t improve happiness. Once you earn enough money to comfortably provide for your family (~$100K a year in non-coastal cities, ~$250K a year in coastal cities), happiness is dictated more by health, family, and friends.

Related:

Do You Want To Be Rich Or Do You Want To Be Free?

How To Win Under The New Tax Plan

Readers, do you forecast your behavior changing under the new tax plan? Are you more motivated than ever to chance money that doesn’t do anything for your well-being? What are some other surprises in the new tax plan that may affect behavior?


The post How The New Tax Plan May Ruin Your Life If You’re Not Careful appeared first on Financial Samurai.

The Biggest Financial Concerns Of Affluent Investors

Main concerns for affluent investorsPersonal Capital, a digital wealth advisor with over 1.5 million users of its free financial tools, released its 2017 Affluent Investor report with some interesting data. I used to consult with them between 2013 – 2015 and have been using their tools to track my net worth since 2012.

The biggest surprise from one of its surveys is that folks with more than $500,000 in investable assets are most worried about a financially secure retirement. Think about that for a minute. With the median retirement savings for 56 – 61 year olds in America at only ~$20,000, Americans with 25X that amount cite financially security as their top worry!

With $500,000+ in investable assets alone, one can presume that most survey respondents have net worths in excess of $1,000,000. After all, about ~85% of the typical American’s net worth is tied up in their primary residence. Check out the survey results.

What the mass affluent worry about the most

I bet most people in the world would consider having $500,000 in investable assets plus a paid off home to be a financial life well done. Therefore, we can conclude that affluent investors have to be one of the most paranoid demographics around, especially since 38% said they are also worried about losing their wealth.

Why Are Affluent Investors So Paranoid?

Most of the people who’ve been able to amass over $500,000 in investable assets are probably older than 37, the median age in America. Therefore, one can postulate that these investors have lived through the housing crisis and maybe even the 2000 dotcom bubble with a significant amount of assets. They’ve seen their investments get slashed by a third within 12 months a couple of times. They know dozens of people who were let go from a job they needed and remained jobless or underemployed for years.

When you amass $500,000+ in investable assets, you naturally start getting paranoid about losing all your money that took years, if not decades to accumulate. That paranoia only tends to get worse the more money you have in risk assets. After all, it takes a 100% return to get back to even if you lose 50% of your money.

Once I accumulated over $1,000,000 in investable assets, it no longer seemed prudent to allocate all my money towards stocks. Instead, I began piling most of my money into real estate to diversify away from my 401k, my company stock, and my career in equities. Little did I truly realize my “diversification,” starting in 2003, was actually a 5X leverage concentrated bet on San Francisco real estate.

The irony with having very little to invest is that you simply don’t have much financial worry. Think back to how happy you were in high school, college, or the first few years after work. All you cared about was having a good time and maybe saving a little money on the side for a vacation or a new ride. Is it any wonder why so many of use were happier before the age of 35?

It was only until after I built some passive income and started this site did my investing paranoia begin to wane. Writing about your fears is a lot like speaking to a therapist who helps put things into perspective.

My Top Three Financial Concerns

1) Poor investment returns from my rental home proceeds. Although it’s been a relief to no longer manage a rental property that comes with a $23,000 a year annual tax bill, I know I’ll be disappointed with myself in 20 years when I revisit how cheap I sold it for. The only solution to minimizing disappointment is earning at least a 5% annual return on my proceeds that cause minimal worry. My hope is that RealtyShares, the stock market, and the municipal bond market will provide such an outcome, but I’ll never know for sure.

2) A large decline in my online business. My online business is the main reason why I’m not concerned about being financially secure in retirement . The income generated from the business is a buffer to the passive income that is currently enough to provide for my family. But as I look into the future, I’m thinking of taking things down a notch to spend more time with my son and minimize happiness downturns. Less effort generally means less reward unless I can increase productivity. The creation of the FS iTunes channel is one way for me to buy time during the weeks I no longer want to write. It’s potentially a new revenue generator as I’ve already been offered two sponsorship proposals.

3) The financial well-being of my in-laws. My parents are thankfully financially secure due to their long careers in the US Foreign Service. They lead frugal lives with no debt, minimal expenses and have healthcare and pensions. My in-laws, however, are not as lucky. They are surviving fine, but I want them to be thriving at their age. I want to find a way to financially help them without offending their honor. This is a tricky subject that deserves a dedicated post.

Try Not To Let Wealth Get In The Way Of Happiness

The amount of financial worry six figure income earners and high net worth individuals have is quite a paradox. But paranoia helps investors accumulate more capital in their lifetimes than those who couldn’t give two poops about financial freedom. However, investing FOMO never allows folks to ever be satisfied with how much they have.

The key to being financially happy when you’re already doing well is to compare your current self to your past self and not to other people. If you can focus on your own progress, dare I say your happiness meter might jump up a point or two!

Related:

The Fear Of Running Out Of Money In Retirement Is Overblown

Readers, what is your number one concern as an investor today? If you are an affluent investor, are you really concerned about financial security in retirement? If so, why when you have way more money than the average person?


The post The Biggest Financial Concerns Of Affluent Investors appeared first on Financial Samurai.

Happiness By Age: Stay Away From 35-60 Year Olds

Happiness by ageWould you rather be perpetually happy for the rest of your life with no guarantee of great fortune? Or would you rather have great fortune for the rest of your life with no guarantee of ever being perpetually happy? Choosing money is obviously the answer! Just kidding.

Today if I were to rate my happiness on a scale of 1 – 10, 10 being deliriously happy, I would give myself an 8. Historically, I’d say my happiness probably fluctuated between a 5-7 during my high school years, a 7-9 in my college years, and a 6-8 in my 20s and early 30s.

High school was stressful because I knew so much of my future was riding on getting good grades and SAT scores. Combine academic pressure with athletic demands and peer pressure to be “cool,” I wonder why more kids don’t fall into the deep end, especially with absentee parents working all the time.

College was pretty exhilarating due to all the sudden freedom. Food was plentiful and the parties outrageously fun. Being able to date so many people was a blast. Oh yeah, and learning new subjects was a nice benefit too. The only real pressure came from the expectation of finding a good job. Spending four years of time and lots of money only to end up with nothing would be a great disappointment.

The relief of actually getting a full-time job catapulted my happiness to a 9. But the happiness didn’t last due to the 70+ hour work weeks. Getting in before sunrise and leaving after sunset got depressing after a while. My happiness tumbled to a 6 when I realized all my work in college had led to one big endless grind.

Even a generous promotion at age 27 only made me a 9 level happy for a couple months. Then it was back to being a whipping boy for clients and playing corporate politics. By 2011, my happiness again dropped to a 6. The financial crisis had taken its toll and I was tired of doing the same crap.

It was in October 2011 while drinking an overpriced Mythos beer at the top of Santorini, Greece that my happiness rocketed to a 10. I was overlooking the crater on a sunny 78 degree day and had just earned $1,200 via Paypal from an advertising client in the span of 30 minutes. It wasn’t the money that made me happy, it was the realization that I found a way out of prison.

Then Happiness Came Tumbling Down

Ever since I engineered my layoff in 2012 at the age of 34, my happiness level has stayed between 7-8, with only brief moments of 9-10. I attribute my happiness to an incredible wife, the growth of Financial Samurai, good health, and a bull market. But one day my happiness took a tumble, and it stayed around a 5 for about three weeks.

What happened?

During these three weeks, I experienced tremendous lower back pain – pain I hadn’t suffered in over 15 years. Online, I was being judged by non-parents regarding my insurance plan for my son’s future. Offline, I was tired because I stubbornly kept a rigorous posting schedule despite now being a full-time dad between 8am – 10pm every day since birth. Heck, even in the United States working parents get 1-3 months of parental leave.

As any rational person would do, I began researching whether something was wrong with me. Here are some interesting charts on happiness and age I found. Can you see any patterns?

American Survey

Well what do you know. At the age of 40, I’m in the beginning stages of “the trough of unhappiness.” In America, we experience a dip in happiness between the ages of 35 – 60. Even in the European Union, where many of the happiest countries in the world are located, there’s a trough of happiness between 35 – 60. If you can live past 60, the good thing is that happiness generally improves until death.

The only country where you don’t want to live is Russia, where from birth happiness is on a continuous decline! No wonder why the Russians meddled with the election and now control American politics. They wanted out of the motherland after realizing how good we’ve got it.

What Happens Between The Age Of 35 – 60 To Cause Unhappiness?

You would think that being financially independent at 40, owning a sustainable lifestyle business, receiving regular positive feedback from readers, and having a family would give me maximum happiness. But it has not due to three main reasons:

1) Hedonic adaptation. The beautiful thing about the human spirit is that even in dire situations, we have the ability to keep hope alive. At the same time, even if you have every thing you want, the happiness boost never lasts long. We always revert back to our steady state of happiness over the long term.

Think about all the good things that have happened to you: getting into college, getting a job, getting a promotion, getting a raise, finding a partner, finally feeling rich, buying your dream home, having a baby, making a best friend etc. Each event might give you a 1 or 2 point boost, but sooner or later, the boost will fade as responsibility kicks in. It’s kind of sad really.

2) Sandwiched in the middle. As a new father, I feel the strains of taking care of my little one. His mom and I are his guardian, physical therapist, educator, and caretaker all-in-one. At the same time, our parents are over 70, and they can no longer walk, climb stairs, drive, remember, and think as they once did. Folks between the age of 35 – 60 are dealing with the responsibility of caring for two generations, while usually also managing their careers. Financial strain may come into play due to the cost of healthcare, day care, and assisted-living care.

Our stress comes from being 5+ hours away by plane from both sets of parents. We worry about basic things like whether they’ll be able to safely maneuver the stairs without falling. It would be amazing if they all came to the Bay Area so we can check in on them every week. But they are set in their ways, so it’s up to us to move as soon as our son can become a little more independent.

3) Health. After turning 40 I suffered back pain for the first time since my 20s, sprained my left ankle playing tennis, and tore muscles in both quadriceps playing softball. What the hell? The left ankle sprain happened even though I was wearing an ankle brace. We were 2 hours, 10 minutes into a match when I went the wrong way guessing for an overhead smash. Both quads were strained because I had not properly warmed up. I hadn’t gone from a standing position to a full sprint after hitting a ball in over a decade.

Our bodies rarely keep up with our minds because most of us are no longer manual laborers. My mind is strong because I exercise it every day thanks to this site. But my body is weak because I don’t work out, don’t stretch, and only play a sport at most three times a week. Nothing is worse than being injured or sick, especially when it rarely happens.

Money Is Just One Part Of Happiness

Definition of happiness

To be a truly holistic site that helps people, going forward, it’s important Financial Samurai focuses more on Relationships and Health instead of just wealth creation. After all, we can have all the money in the world and it will mean nothing if we don’t feel good and have nobody to share it with.

Let’s optimize for happiness by building incredible friendships, staying in great shape, and building passive income so we have the freedom to choose our lives.

The next time a 35 – 60 year old makes you feel bad, give them a pass, including myself. And if you want to really get a happiness boost, find some 70+ year olds to hang out with. They might even teach you a thing or two about living a wonderful life.

Readers, what is your happiness level between 1-10? When were you the happiest and least happiest in your life? For those over the age of 60, has your happiness level improved? Why do you think happiness levels improve the closer we come to death? Thanks to hedonic adaptation, I’ve recovered back to an 8. If you’re interested in audio versions, you can subscribe to my iTunes channel here. 


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The Value Of A Property After Experiencing A Tragic Death


Value of property that experienced a tragic death

On one of my winter open house rounds I stumbled upon a beautifully renovated Edwardian with three bedrooms and two bathrooms on the top floor, a full bathroom on the first floor, and a bonus room on the bottom floor. It looked a lot like my rental house I sold this summer, but brand new.

At 2,500 sqft, I thought the house would list for ~$1.8M and sell for closer to $2M. But instead, it was listed for $1.49M and had been on the market for several months already. I immediately wanted to buy the place given the ~$500,000 pricing discount.

Upon further investigation, however, I learned from the new listing agent there was a terrible fire back in September 2013, hence the gut remodel. That’s fine, so long as the new construction was done up to code. But then the listing agent went on to tell me there was not one, but three deaths as the result of the fire: a 33-year old father, his one year old daughter, and her grandfather.

As a new father, my heart sank to the deepest depths of the ocean. I could not imagine losing my son so early. My only wish for the Grim Reaper is that my son outlives both his mom and I, 25 years from now. 

Buying A Property That Experienced A Tragedy

Even with a 20%+ discount to fair market value, I would never buy a home that experienced such tragedy. Call it superstition, but I would always wonder whether their ghosts would haunt us because we had taken over their home. Maybe the house is cursed and would consume all of us in the future as well with a new fire.

When the firefighters got there at 1:30am, they said all the fire alarms were blaring. I’d like to think that if I smelled fire and heard the alarms, I would have the calmness to wake up my wife, pick up my baby, and walk 20 feet out the door. Even if a fire was blocking my way, I’d walk through the flames protecting my little one knowing that short-term burns would be better than death. But such disasters often happen too quickly to react.

The only way I would ever consider buying a property with such a tragedy, even at a steep discount is if it was for a rental. In San Francisco, you have to disclose if there has been a death on the property within the past three years. The owners waited until the fourth year to list, which may or may not have been on purpose. But as a landlord, you don’t have to disclose, but you probably should just in case.

In the end, I decided even if the property was free I wouldn’t be willing to own the home. It would be like owning a dog that mauled to death three children. The constant association with such a tragedy would be too difficult to bear.

Other Types Of Deaths In A Property

Based on my research, it seems like the average discount to market for a tragic death on the property is somewhere between 15% – 25% in America. Tragic deaths include: homicide, suicide, death by fire, death by electrocution, death by falling.

For nontragic deaths, the discount is anywhere from 0% – 10%. Nontragic death is considered death by a natural cause e.g. old age, organ failure, disease.

If you are a home buyer, let me offer up a guide to how much of a discount you should argue for during negotiations if you are OK with buying a property that experienced a death. It’s always good to anchor low in the beginning and move towards the middle.

Property price discount

Now that I think of it, perhaps there’s an arbitrage opportunity for buying new construction homes in places that are extremely superstitious about home deaths or areas with a much older demographic. Surely there are plenty of people willing to pay a premium knowing they are the first and only person to create new memories in a new home.

Let’s embrace everyday as if it were our last.

Note: There is a poll embedded within this post, please visit the site to participate in this post’s poll.

Related:

The Real Estate Investing Rule To Follow: BURL

Insurance For Natural Disasters: Fires, Earthquakes, Hurricanes Oh My

Is there a certain percentage discount that would entice you to purchase a property? The house that was listed for sale in this post didn’t receive an offer at their offer due deadline. 

Note: Thanks to reader feedback, I’ve created a Financial Samurai iTunes channel for those who enjoy listening. I’m still trying to figure out how to get the channel to list all the podcasts published. In the meantime, I’ve created a Financial Samurai Podcast page that has every single podcast I’ve published, including the links to the respective posts. Feels good to highlight a problem and take action. 

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To Get Better, Be Brutally Honest With Yourself

To get better, you must be brutally honest with yourselfOne of the downsides of putting yourself out there is that you open yourself up to misinterpretation or criticism. Fear of ridicule is one of the biggest reasons why 97% of people don’t do anything to change their life. It all starts with getting bullied at school or admonished by our teachers or parents for doing something different. Is it no wonder why we all get in line once we graduate?

For some reason, I was always the kid who fought back against bullies, no matter how big or how menacing they were. I figured, even if I got pounded to a pulp, before I did, I’d be able to at least get in one blow and it’d be worth defending my honor.

Because of my defiant behavior, I went to the principal’s office plenty of times. I was suspended from school twice for fighting and my parents were none too pleased. It didn’t matter who started the fight, if you fought back, you were equally punished. I thought this was a bullshit system, which gave me my first clues into a rigged society.

Despite the discomfort of doing something new, I’ll continue to experiment in order to grow. But sometimes, I’ve got to recognize failure by being honest. Here are a couple examples. I’d love for you to share some of your examples as well. 

Honesty Is The Only Way To Get Better

1) Developing an audio version of each post. When I’m too tired to sleep, I like to work to give insomnia the middle finger. One of the ideas that popped up was to make an audio version of each post. Not only would the audio version include some ad lib to give each post more color, it was also a good opportunity to practice my oral communication skills. Further, an audio version would make FS accessible to those who enjoy listening to podcasts during their commute.

After completing three audio versions, I asked for feedback in my private newsletter whether folks found it useful or useless. To my disappointment, I only got ten responses out of 20,000+ subscribers. Nine said audio versions were useful, one said it was useless. In my mind, I was thinking I’d get at least 50 responses, just like how I did when I asked for parenting tips. But I think people were too afraid to speak the truth.

So if I’m brutally honest, what does this mean? It means: 1) nobody cares about audio versions, 2) I haven’t made a strong enough connection with my newsletter readers, 3) I haven’t added enough value to my subscribers, 4) my voice hurts people’s ears, and 5) my newsletters are too long.

It’s hard to realize the truth, but the truth is the only way I can optimize my time and improve my verbal delivery. What’s the solution? Only do audio versions if I have the energy. If I do an audio version, try to speak more clearly and introduce new stories. But also realize that since nobody cares about the audio version, I should feel free to let loose and just have fun with the delivery.

2) Making people think in different ways. I enjoy reading material that leaves me thinking about a situation long after I’m done. It’s the same thing with movies like Inception or the season finale of The Sopranos. Whatever happens next is based on your interpretation.

Despite everybody saying they want the freedom to choose, I’ve found that most people simply like to be told what to do. Due to my personal preference for deeper thinking, I’ve ended up confusing many of my readers with unclear prose.

Here’s an example of one reader’s feedback from my post, How To Stop Worrying About Your Child’s Future In A Brutally Competitive World. The entire point of my post was to help parents stop worrying about their kids not getting straight A’s, not getting into a prestigious university, and not working at a coveted job that pays well.

I find it interesting that you state as fact the equivalency of a top rated University with a top rated job. Perhaps Silicon Valley is more merit based than your previous field, but after your first 3 year gig after graduating from any school your peers rate you on merit and the sky is the limit. 

I worked with very good people who trained a couple years in a local college and really bad people with PHD from top rated schools.

I also believe it’s somewhat telling of American ignorance to make a statement like that. Sort of like why Americans can’t get universal health care in place. The powers that be are working hard influencing the population that “socialist” health care is bad. 

It’s becoming ingrained into American Life practices that prevent upward mobility of the masses. I don’t have the legacy statistics handy but many college acceptances are handed to those who have not earned them.

I mean – Didn’t George W. go to Harvard? Doesn’t that provide an interesting data point on the quality of graduates from Top Rated schools?

My opinion is that your child needs a higher education as an pass to get into the workforce. If the industry is merit based, he needs work ethic, communication skills and a bunch of other attributes that are not taught in schools for success.

It sure sounds like he agrees with me, yet he doesn’t realize it. Getting a college education today doesn’t guarantee you squat anymore, and it certainly won’t guarantee you anything 18 years from now. I even link to the post: What If You Go To Harvard And End Up A Nobody, yet the reader still thinks I only believe people who go to top rated universities get top rated jobs.

If I’m brutally honest with myself, what does this conflict mean? It means: 1) I write too much fluff, 2) confuse people, 3) don’t understand the trend of shorter attention spans, and 4) stubbornly think people like multiple layers in a post just because I do.

So what’s the solution? Write shorter, simpler posts that tell it like it is. Just like USA Today, dumb down posts to make them easier to understand. For example, instead of sharing stories explaining why so many people have miserably low 401k balances, just write something simple like, “People don’t save because life happens.” Bam! Time saved. Message conveyed. If I can’t get my point across, I’m failing.

Seek Judgement

Look, I know it’s easier to do nothing. But I challenge you to open up yourself to judgement and ridicule if you want to grow. Some people will be nicer than others when it comes time to evaluating what you’ve put out in the world. Others will project their insecurities onto you. Embrace the feedback and be brutally honest with yourself! It’s the best way to get better.

Feedback from readers has given me the green light to introduce posts that are short and simple. Being honest made me realize I’ve been spending too much time doing things that don’t matter. As someone who needs more time, these discoveries are a blessing.

Other benefits of being honest with yourself:

* You’ll stop blaming others for your problems and focus on improving yourself. As soon as you wipe away your delusion, you will become happier.

* You can scale your business faster because you’re addressing the lowest common denominator. Personal finance sites that focus on saving and frugality are often much larger than sites that focus on different ways to earn more money.

* You will get paid and promoted faster at work because you’ll more clearly recognize your blind spots. It’s hard for your colleagues and friends to be brutally honest with your deficiencies because they don’t want to hurt your feelings, get sued, or get murdered when you decide to go postal.

Related:

Dunning-Krueger And Your Delusional Self

Be Unapologetically Fierce About Pursuing Your Dreams


Readers, what are some of the ways you’re putting yourself out there? What kinds of critical feedback have you received that helped make yourself a better person? Any more feedback for me to make FS better without spending more time? Thanks!

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