Dear Financial Samurais,
Investing feels like it’s getting trickier by the day, and the last thing I want is for you to get caught holding the bag because of poor asset allocation discipline.
I know how strong the temptation can be when FOMO kicks in during a raging bull market. Every headline screams about new highs, every dinner conversation revolves around the hottest stock, and it seems like everybody else is getting rich while you’re left behind.
But remember: one of the most dangerous things you can do is chase assets outside your true risk tolerance.
Let me share a couple of recent examples that illustrate how easy it is to get burned.
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1) Holding the bag with a value stock
Lululemon (LULU) looked like a value investor’s dream after its share price dropped 50% to $200. On paper, it was trading at only 13.5X earnings compared to its historical 25–30X multiple. Many investors thought: surely the stock must be near a bottom, right?
Well, not quite. The company reported earnings last week and cut guidance for the second time. Management blamed tariffs instead of themselves, as U.S. sales growth came in at a negative 4%. Investors didn’t take kindly to the update, and the stock plunged another 18%.
This is the problem with “value stocks” that look cheap. Sometimes the earnings are declining faster than the stock price, making the stock not as cheap as it appears.
I’ve been tempted by these traps myself. I bought Nike stock last year because I’m a customer and thought it was undervalued. But the reality is, the stock has gone nowhere while the S&P 500 has surged higher. With consumer-facing apparel, fickle trends and tighter wallets during economic slowdowns make “turnaround stories” an even tougher bet.
If you’re serious about FIRE, you don’t have time to gamble on a brand turnaround that may never materialize. In the end, when belts tighten, people don’t want to spend $150 on yoga pants when $40 ones from Walmart get the job done.
2) Holding the bag with a hot IPO stock
On the other end of the spectrum, you’ve got IPO mania. Take Figma, for example. After skyrocketing by 333% to $120/share during its debut, the stock is now down more than 60% in just a month and a half.
Their first quarterly report was a disaster: margins got torched, guidance was poor, and they announced plans for large acquisitions. To top it off, they admitted to holding bitcoin on their balance sheet, which raises all sorts of questions about risk management.
And here’s the kicker: the insider lockup period expires at the end of the year, which means even more selling pressure could hit the stock. This is the danger of IPO hype. Retail investors pile in early because of fear of missing out, but when fundamentals disappoint, they’re often left holding the bag.
Don’t Sleep on Treasury Bonds
When you compare these two scenarios—trying to catch a falling knife in a “value” stock or getting burned on a hyped IPO—suddenly a Treasury bond yielding ~5% annually doesn’t look so boring. In fact, it looks downright attractive.
I’d rather sleep well at night knowing I’m earning a guaranteed 5% risk-free than wake up to see a stock holding down 50%. Sure, Treasuries won’t double overnight, but they can appreciate in value when yields fall, just like stocks rally when conditions improve.
This is something many investors overlook. After publishing my recent post on the attractiveness of a 20-year Treasury bond yielding ~5%, I got emails from readers surprised to learn that bond prices rise as yields decline. That “extra” capital appreciation benefit makes Treasuries a lot more exciting than people give them credit for, especially now, with the economy clearly slowing down and labor markets weakening.
Check out my post Treasury Bonds Can Appreciate Too to see the math for yourself.
No Fun Being a Landlord
Speaking of stress-free investing, I’ve been reflecting on my own real estate journey. For years, I believed rental properties were one of the best ways to build wealth. And to be fair, they are with the double benefit of rising rents and rising property prices. But they also require patience, energy, and a higher tolerance for conflict than I like.
As I get older (and hopefully wealthier, wiser, and with firmer abs), I’m realizing that being a landlord is increasingly unappealing. The headaches around tenants, repairs, and setting expectations can wear on you, especially once you’re financially secure. At some point, you start valuing your time and peace of mind more than the incremental cash flow.
That’s why I now think real estate investing is a young person’s game. If you want to build a rental portfolio, do it before age 45. By then, if you’ve been disciplined about saving and investing, you’ll likely have enough capital and family responsibilities that you won’t want to be dealing with late-night maintenance calls or tenant disputes.
I’ve chronicled my landlord experiences since 2009, and my latest conflict was a reminder of why my tolerance has declined. Much like older employees who no longer have patience for corporate politics, I find myself with less appetite for landlord / tenant conflict.
If you’re considering real estate, read my post To Be A Successful Landlord, Setting Expectations Is A Must. The situation is not a big deal, but it does take mental energy I'd rather use on my kids.
Another Cure for FOMO
Finally, one surprising cure for money anxiety is simply to stop checking your net worth so often.
I went four months without logging into my dashboards, and it was wonderful. I felt less stressed, more focused on the big picture, and less prone to knee-jerk decisions. Sure, checking frequently can help optimize decisions in theory, but it also increases the chances of making emotional moves.
If you can combine less frequent net worth check-ins with less portfolio monitoring, you’ll probably be happier. Maybe the sweet spot is once a week, timed with this newsletter.
See my post The Surprising Benefits Of Not Checking Your Net Worth Often for more insights.
Bonds and Real Estate Are Making a Comeback
With the 10-year Treasury yield plunging to 4.07% on Friday after a weak jobs report, mortgage rates have finally started to ease. Average 30-year fixed mortgages are around 5.5%, while 15-year loans are closer to 5.25%. Five- and seven-year ARMs are at 5% or lower. And these are just averages. Savvy readers here can probably secure even better terms.
This is a reminder that markets are cyclical. If you’ve been waiting for bonds or commercial real estate to catch up to stocks, the time is now. I’m not looking to buy another physical rental property, but I am dollar-cost averaging into long-duration Treasury bonds and residential commercial real estate. Over the next two to three years, I expect these asset classes to perform well as interest rates decline further.
Just one caveat: protect your job if you still need it. The labor market is weakening, and once you lose your job, it might be a while before you find another. Now is the time to play nice, show your value, and be indispensable.
Stay balanced, stay disciplined, and most importantly, fight for financial freedom every day!
To Your Financial Freedom,
Sam
Suggestions To Build More Wealth
If you believe interest rates will trend lower over the next several years—as I do—consider investing in Fundrise, a private real estate platform managing over $3 billion in assets for more than 380,000 investors. Its portfolio of residential and industrial commercial properties is well-positioned to benefit in a declining rate environment.
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