Dear Financial Samurais,
Well folks, we did it. We hung on, perhaps bought the dip, and the S&P 500 is now up a little over 1% for the year! What a wild two months it’s been.
Now, here’s a thought exercise everyone should do:
Ask yourself how you felt during the recent downturn. Frustrated? Scared? Angry? Indifferent? Excited? Whatever your response, you now have a second chance to adjust your asset allocation based on your true risk tolerance. Finding your risk tolerance is a lifelong activity.
As I wrote in previous newsletters, I wasn’t scared during this downturn, but I was moodier than usual. When stocks tanked after Liberation Day, I was reminded why I prefer real estate over stocks. It’s uncomfortable not being able to take action, especially since I’ve been a doer my whole life. But that’s the beauty of stocks: most of the time, patience is what you mainly need.
Here’s another useful question: What do you think about locking in a guaranteed positive return for the year? Just a month ago, the idea of the S&P 500 posting a third straight year of gains seemed unlikely. Now, you could literally sell all your stocks, park the proceeds in a 1-year Treasury bond yielding a guaranteed 4.17%, and be done with it. +24% in 2023, +23% in 2024, and ~5%+ in 2025 doesn’t sound too shabby.
I’m not saying you should sell all your stocks, especially if there are tax consequences. But I do encourage you to think in extremes to better understand your risk tolerance and ideal asset allocation. When investing in risk assets, always compare the potential return of the asset with the guaranteed return of the risk-free rate.
Why I'm De-Risking
Personally, I'm taking some chips off the table in the portfolio where I bought the dip. This is the taxable portfolio which I depend on to survive and feel comfortable as a father without a day job. With my other portfolios, I'm also raising some cash, but not as much as they are for when I'm 60+.
I’m surprised Treasury bond yields climbed higher despite a lower-than-expected PPI figure. The higher the risk-free rate goes, the more attractive it becomes in comparison.
We’re not out of the woods yet, though you can never count out the U.S. consumer. But the risk-reward ratio no longer looks great, with potentially 5% upside from here (I've kept my S&P 500 target at 6,200) and 5%–10% downside. Valuation for the S&P 500 is also back at ~21.5X forward earnings, which is expensive.
Went Almost All In
Another reason I’m de-risking is because I was an aggressive buyer of equities for 50 days. First, I was losing in March. Then, I started winning after buying steadily throughout April. I telegraphed my moves in my April 9 post, My Bear Market Investment Game Plan, where I shared how I invested 80% of my available cash into risk assets.
Now that the market has rebounded, my taxable portfolio is up about 8% for the year (excluding new capital), or about 3.8% including it, I no longer feel the need to be so aggressive.
In total, I invested around $1.25 million in the S&P 500 and various tech stocks. That’s more than I’ve ever invested in a short time period, which explains my increased moodiness. I took on excess risk and made it through. Now, I’m back to a more balanced asset allocation of roughly 60% equities and 40% bonds and cash, like a traditional retiree.
Check out my new post: Buying the Dip: Overcome the Fear and Prosper. I’ve learned some important strategies that help me invest when everything feels uncertain.
Note: I don’t think Moody’s downgrade of America’s credit rating on Friday will be a big deal. Credit agencies are always lagging indicators. However, watching how Treasury bond yields react is what really matters.
It's OK to Sell Property Even If You're Bullish
Given that writing doesn’t pay well, you might wonder how I managed to invest so much during this latest downturn. The answer lies in selling my old primary residence, which I had turned into a rental for a year. Although I was fine with continuing to rent it out if my tenants renewed, they gave their 30-day notice at the beginning of the year.
While maximizing returns is a big part of the journey to financial independence, it’s not the only goal. Sometimes, selling a property, even if you’re bullish on the market, is the right move for your life overall. As I’ve gotten older, I’ve found my tolerance for dealing with maintenance and tenant issues has declined.
In hindsight, my mistake was buying the dip too early—starting around mid-March as you read in previous newsletters. Had I waited just three more weeks, my returns would’ve been significantly better. Emotionally, I would have felt much better too.
It was one of the worst feelings: selling a stable asset only to reinvest it into a highly volatile one that kept going down. But like a moth to a flame, I couldn’t help but buy stocks on sale and feel like a fool. Hopefully, in the long run, everything will work out with the asset allocation shift.
If you’re thinking about selling a rental or your primary home, even if you believe prices will keep rising, my latest post may help you think more clearly about your decision. Read: Why Sell Your Rental Property Even If You're Bullish
In the End, Mary Said Yes to Lloyd
Did you know roughly 350,000 books are traditionally published each year—and 1.7 million are self-published? Getting on the USA TODAY best seller list of 150 spots across all genres was at most a 1 in 2,500 chance, or 0.04%.
Despite not working for a major media outlet or financial institution to help provide a huge platform boost, I decided to give it a shot. Once the rental home sale closed, I directed full attention to the book and wrote and hustled for 2.5 months
When the USA TODAY bestseller list came out, I was shocked to see Millionaire Milestones land at lucky #21! Making the list kind of feels like winning the French Open tennis tournament as a recreational player with a bum shoulder and a torn meniscus. Let's go!
So, I want to thank each and every one of you for picking up a copy and spreading the word. Against all odds, we did it!
If you want some inspiration, check out: The Best Psychological Trick To Boost Your Wealth Beyond Belief. The older I get, the more I believe happiness comes from committing to something difficult and seeing it through. The outcome is secondary to the fact that you stuck with it and gave it your all.
Keeping Financial Samurai free and accessible to all is my top priority. If you’d like to support this newsletter, buying the book and leaving a review on Amazon and Goodreads is a great way to do so. Another way is by sharing it with anyone you think could benefit from some financial guidance and motivation.
This Is Real Life, Folks
During the latest correction, I kept thinking about how visceral everything felt.
Many of you wrote in, worried about your portfolios and unsure of what to do. Some asked for tips on negotiating a severance package in anticipation of getting laid off. While others had already been let go—including a friend who just two months ago told me he got a huge raise.
I feel the anxiety deeply and I genuinely want to help. That said, it’s tough to provide tailored guidance without knowing your full situation. Still, I hope these weekly newsletters have helped you think more strategically about your finances. And as a result, you’re happier, wealthier, and stronger today.
For those interested in a private 1-on-1 consultation, good news! I’ve secured enough hard copies of Millionaire Milestones through a retailer to extend the promo through June 15. The offer involves purchasing 55 books at a bulk discount to share with friends, family, and colleagues.
If interested, just fill out the form at the bottom of this page and shoot me an email. I’ll get back to you within 24 hours with next steps. It’s been a privilege and a joy connecting 1-on-1 with so many of you over the past couple of months. I’d love to keep it going, as I’m confident you’ll find the experience rewarding too.
To Your Financial Freedom,
Sam
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