Happy New Year everyone!
As always, the New Year brings a bunch of hope and excitement. Too bad I think 2016 is going to be a whole lot of nothing if you’re depending on the stock market or real estate market to boost your wealth! I sincerely wish everybody reading Financial Samurai upgrades their side hustle engine from a two stroke to a rumbling V8 because we’re all going to need to do more.
I’ve listed out 15 measurable goals I’d like to achieve, and I’ve also offered up five predictions for 2016. Some of you might spit out your milk with my last prediction, so it’s best you not eat anything while reading.
GOALS FOR 2016
LIFESTYLE BUSINESS GOALS
1) Test out a new layout for FS so that more articles can be seen above the fold.
My current design is going on its third year and I’d like to try a new design with at least one more column to show more posts above the fold. I think it will be useful for publishing my usual long form pieces plus publish more current event / short form posts. With the new layout, I won’t feel bad publishing more because at least two articles will stay above the fold at the same time.
2) Produce another FS product e.g. book, course, subscription product.
The easiest thing I can do is write a new book each year and publish it under the Financial Samurai brand. I’ve got a lot to say on real estate, early retirement, building a lifestyle business, and adventures on Wall Street. The key will be to pace myself. Otherwise, I’ll feel overwhelmed and accomplish nothing.
3) Inject more humor. I used to be funny once, I swear! But the fun posts such as, How To Get Girls If You Live At Home With Mom And Dad and Stay At Home Men Of The World, UNITE!, have all but gone away for more serious subjects. What happened? I donno. My goal is to poke fun at more serious trends while offering some solutions as well. Feel free to let me know what other categories you’d like me to write more about.
4) Open up a digital wealth management (roboadvisor) account and publish its performance.
Digital wealth advisors like Wealthfront, Betterment, and Schwab Intelligent Portfolio are all finally going mainstream now that they each manage billions of dollars. They’re cheap (0.25% or less), automated, and do tax loss harvesting, which is all most of us really need. I’m often a mid-stage adopter of technology because 1) I don’t know whether they will be around long enough to make the effort (MP3 players anyone), 2) I like to see how industry dynamics, competition, and user feedback plays out, and 3) I tend to get lazy and want to keep things simple.
Given Wealthfront is based here in San Francisco, was one of the first digital wealth advisor founded in 2011, and manages the first $10,000 for free, I’m going to start with them. If things go well over the next year, I will definitely consider allocating a larger slug of my passive index portfolio to them in the future. I think there is a real opportunity for many of these pure robos to help millions of people mobilize their underutilized cash. I’ve got over $550,000 in CDs expiring in the next two to three years which needs to find a home. My hope is that Wealthfront is it.
Finally, one of the biggest mysteries with the roboadvisors is that I can’t easily find the actual performance of these roboadvisory offerings. I plan to fix that by just publishing my own performance every month or quarter and comparing it to several indices, as well as to my actively managed fund at Motif Investing. Outperform or underperform, there is nowhere to hide!
5) Focus on profitability, rather than growth.
It seems obvious that many private companies will fail in 2016 because they aren’t profitable. The only reason they continue to exist is because of new funding. I’ve spoken to several insiders from private companies which have had Series C or D funding rounds. These companies have at most 18 months of runway at current burn rates before they will have to raise again or shut down. Now imagine what the runways are like for Seed, Series A, and Series B companies. Things are getting dicy.
After experiencing a ~50% increase in operating profit in 2015, I would love to see another 15% profit increase in 2016. However, based on current trends, there’s over a 50% chance my business will see negative growth in 2016. Thus, if I’m to meet a positive operating profit goal, I’ll have to hustle and find new partnerships with businesses which have great products (e.g. Wealthfront and PolicyGenius life insurance), plus produce new products on my own (e.g. a new FS book on real estate investing).
My plan is to build out the following categories: Insurance, Investing, Automobiles, and P2P Lending. It’s important to diversify my article topics and create more depth in each category. Retirement continues to be my most important category, which I will continue to write about at least once a quarter.
6) Live in Asia for one month. Target locations: Chiang Mai, Beijing, Taipei, Saigon.
I had such a blast visiting Asia for 3.5 weeks in 2015, that I want to try some digital nomad living by living and working overseas for at least a month. Between 2011 – 2014 I went to Europe for two plus weeks a year, so it’s time to focus on Asia, and then perhaps South America. I realized my happiest times are when I’m actually fully utilizing my freedom by traveling. It’s nice to work from home in San Francisco, but working from home is no longer something special.
7) Finish the deck off the master bedroom and do some landscaping to improve curb appeal.
Instead of creating a 700 sqft extension to my home for ~$200,000, I’d rather just build a nice 130 sqft deck off my master bedroom for < $30,000. Less stress, less money, happier life! Almost all the windows in my home have been changed, except for the master bedroom’s because I plan on creating sliding doors where the windows currently are. It will take about three months to get my plans approved from the planning department. During the summer, I’d love to be able to walk outside my bedroom, do some yoga in the morning, and write a post in the afternoon while overlooking the ocean. Not having to do much remodeling anymore is another reason why I really want to start travelling again.
8) Get rid of all the old clothes I haven’t worn in over a year.
Downsizing to a smaller house helped me donate at least eight boxes of stuff. Having a bunch of unused inventory really bums me out, especially when I know there are other people in need. And it’s not just clothes either, but putting a limit to the amount of new retro tennis shoes and the amount of stuff I buy. Now that I’ve grown accustomed to my new smaller house, once again, things have begun to accumulate.
9) Attend at least four world class tennis tournaments.
I’m a first class tennis junkie. I can watch for 10 hours in a row. Going to Paris seven years ago to watch the French Open and being a tourist was just wonderful. I long to go back and visit the museums, walk the streets, and eat the baguettes. Attending Wimbledon in 2014 to watch Roger Federer and Rafael Nadal play on center court with better seats than the Royal Box was amazing! I definitely plan to go back to the US Open in NYC because my sister and nephew are there as well.
10) End the year at under 163 lbs while winning at least two 5.0 level tennis matches.
It’s much easier to stay in shape if there’s a purpose. Break up with your significant other if you want to get in the best shape of your life! My purpose is to join a better 5.0 team and win a couple legit 5.0 level matches. 2015 was the first year I was a 5.0, so as a result, I ended up playing with a bunch of 4.5s and newly promoted 5.0s. A weight of 163 lbs at 5’10” is just about right for my frame, with an upper bound limit of 168 lbs. After visiting my doctor about sleep apnea, and discovering there is a tight correlation with weight gain and sleep apnea, I’ve decided to get down to 155 lbs instead!
PERSONAL FINANCE GOALS
11) Don’t go back to work full-time unless the work AND pay are amazing.
Each year for the past three years I’ve been able to find work with interesting new companies as a consultant. 2016 will be no exception. I plan to look outside of fintech because I’ve had enough. I attended too many fintech startup meetups, parties, and presentations in 2015. At least I was able to write some interesting posts such as, Advice To Startup Employees: Sleep With One Eye Open, when I discovered how poorly the vast majority of startup employees are getting compensated. I’d love to bring new insights into a different industry for 2016. I’m thinking about fashion, fitness, and retail. Industries that are completely out of my wheel house!
12) Increase net worth by $500,000.
2016 is going to be a difficult year for the stock market and real estate market. As a result, I can’t count on my investments providing any increase in net worth. In fact, I’m bracing for at least a $300,000 decline in my asset values in 2016. As a result, I plan to increase my net worth through a 60%+ after-tax savings rate, defending my business income from no more than a 20% decline, and potentially new consulting opportunities. My plan is to track my net worth as usual with Personal Capital’s free financial tools. I’ve taken a snapshot of my net worth on Jan 1, 2016, and will measure the progress every single month to make sure I’m on track!
13) Finally achieve my $200,000 a year passive income goal. Although I will be a year late at reaching my goal, it’s better late than never. Rents on two properties are going up per my contracts, I’ve got a new rideshare referral program generating $500 – $800/month, and my severance negotiation book sales have also ticked up by ~$200 a month due to a new second edition and an increase in price. If I can successfully publish a new book in 2016, I don’t see why I can’t achieve my goal. Here is my latest passive income details for 2016.
14) Start hacking away at my vacation property mortgage. I plan to pay down at least $20,000 in extra principal to my ~$419,000 Lake Tahoe vacation property mortgage. The mortgage was modified for free by Bank of America from 5.875% down to 4.25% several years ago. 4.25% is not high for a 30-year fixed mortgage, but it is still almost double the risk free rate of return. I don’t plan to be more aggressive because this asset is the largest laggard in my net worth. It might be worth $550,000 from $700,000+, but I’m not sure. It’s never good to throw good money after bad, but I think the Lake Tahoe real estate market has finally turned the corner, and I still plan to hold onto the property forever.
15) Set up a new car fund. In two years I’ll be 40, and I know I’ll have a mid-life crisis then. In two years, the lease on my 2015 Honda Fit coincidentally runs out as well. Given I will go through a mid-life crisis, I should set aside a separate savings account now to pay for the perfect mid-life crisis car, like a Porsche 911. This car costs about $60,000 second hand. As a result, I’ve got to put aside roughly $2,500 a month into an online savings account like Capital One 360, so the money can at least earn 0.75% interest rather than the 0.1% or 0.2% with a bricks and mortar bank. If I don’t go through a mid-life crisis, then at least I’ll have saved an extra $60,000!
PREDICTIONS FOR 2016
1) The S&P 500 ends down 1.4% excluding dividends.
If we include 2009, we’ve had a good seven year run since the crisis. Be prepared to be absolutely disappointed with the stock market in 2016. Valuations are at the upper bound range, earnings growth is slowing, interest rates are rising, and geopolitical uncertainty is heightened. I think there’s about a 70% chance the S&P 500 ends negative for the year, so I’ve created a very defensive Motif portfolio for 2016. A 1.4% decline on a 2,044 Dec 31, 2015 S&P 500 closing price = 2015 target for 2016.
2015 on the S&P 500 is relatively bearish versus consensus S&P 500 target estimates by most Wall Street strategists below. The general range is 2,100 – 2,300 for a 2.6% – 12.5% gain. I’m happy to be wrong! But I’m not going to wait around and see if I want to achieve my +$500,000 net worth goal.
2) The 10-year yield stays under 2.75%.
Despite the Fed rate hike, the 10-year yield will continue to stay suppressed because there’s a flight away from stocks and towards US Treasuries for safety. I’ve made a low interest rate environment call for over 10 years, and I maintain my belief that interest rates aren’t going up for a very long time. The Fed could raise interest rates by another 0.75%, and I still don’t think the 10-year yield (~2.3%) will be above 2.75%. In other words, the yield curve flattens, and buying Treasuries is not going to be a bad trade for those who want to protect capital.
3) The real estate market slows down drastically, and goes negative in many noncoastal cities.
Despite continued low mortgage rates, the hottest real estate markets in the country (SF, San Diego, Denver, NYC, San Diego, Portland) will see a median price increase of less than half the percentage increase seen in 2015, i.e., ~4% – 6% instead of 10% – 18%+. Math dictates that without corresponding wage growth, demand shall slow. Supply is also growing as well.
The national median home price increases by 2%, matching the rate of inflation i.e., no real appreciation. Please be in no hurry to buy a home in 2016. Be picky, ask for concessions, make real estate agents lower their 5% commission already! Read: Should I Buy A Home In A Rising Interest Rate Environment
4) Brazil, Gold, and Oil all surprise on the upside.
Brazil is at a 10 year low. Gold is at a five year low. And WTI is down to $38, a level where it was during the 2009 financial crisis. I see opportunity in all three asset classes, although the trend is down. As a result, I’m nibbling into EWZ (Brazil ETF), GDX (Gold Miners), and refiners like Exxon. In 2016 I will take a dumbbell approach to investing. I will be trying to get roughly 50% of my portfolio in defensive positions like bonds, 40% in the S&P 500 index, and 10% in more speculative, bombed out names like the ones I’ve mentioned in this prediction. The logical investment trend is to invest in companies that benefit from USD strength and weakness in commodities.
Here’s my Motif portfolio with 41% in bonds, and some small positions in the names I mentioned above which are already causing me pain. I like autos and airlines due to low energy costs that allow for lower input costs and higher profits.
5) Hilary Clinton wins the US Presidential election.
Despite Hilary sounding like a robot who reads populist lines from a script to convince the middle class to vote, she goes on to defeat Donald Trump because she captures the majority of minority and female voters on top of all the Democratic voters. While I like that Donald Trump speaks his mind and can’t be bought because he’s already a billionaire, his rhetoric is too incendiary to capture the majority of voters. For example, Latinos make up roughly 18% of the electorate, maybe more.
To win, candidates really need to be more political by kissing everybody’s ass. Donald suffers the same disease as Mitt Romney. Because they are so rich, they just seem too arrogant to understand the math necessary to win a majority. Mitt never understood that winning 100% of the top 10% still loses to Obama winning 30% of the remaining 90%.
I’d love to see a noncareer politician win. Unfortunately, the reason why politicians win is because they are experts at being politicians!
WHAT WILL 2016 BRING?
What are some of your goals and predictions for 2016? Are you as pessimistic about the year as I am? I’d love to hear bullish reasons why 2016 will be a great year for stocks, real estate, or other asset classes!
Above all else, you must focus on what you can control to build wealth. Track your net worth, come up with a financial plan, raise your savings rate, learn all you can about investing, and properly allocate your assets in a risk-adjusted manner. Hustle to generate more income on the side. Don’t wait until you are fired or just can’t stand your job to begin planning something new. Start today!