Dear Financial Samurai,
We did it! We successfully survived the latest correction, bought the dip, and our portfolios are back at all-time highs. What a blessing it's been to write this newsletter, share our investment strategies, and watch them pan out.
Take a moment to celebrate. Take out a friend or loved one for a wonderful meal. Use 10% of your gains to buy something you've always wanted but don't need. The discipline and risk you took to invest deserves to be rewarded, because at the end of the day, stocks are just numbers on a screen until you do something meaningful with them.
That said, stay humble. Back to scrubbing toilets and doing all housework for you. We're still in a midterm election year, which has historically brought heightened volatility.
After a remarkable rally over the past 14 days, another pullback is likely. Review your asset allocation and identify your weak spots. If you felt any discomfort during the last dip, you now have another chance to rebalance.
Not Everybody Needs To Suffer
During the last correction, I decided to aggressively invest in both of my children's custodial accounts. My thinking: there was no need for all of us to suffer. Even if I couldn't protect my own portfolio from the downturn – given my limited cash flow as someone without a day job – I could still make a meaningful contribution to their accounts.
A $30,000 investment in a $135,000 portfolio represents 22% growth. That same $30,000 in a $1 million portfolio is only 3%. So while my portfolio was taking a hit, I chose to focus on building theirs. I also realized that contributing beyond the annual gift tax exclusion isn't as big a concern as many think.
Check out: Investing More Than The Gift Tax Exclusion Amount Shouldn't Be A Problem
Allocating Cash Flow Across Three Generations
This decision, combined with a sobering look at the rising cost of eldercare, got me thinking about how we should allocate capital between ourselves, our parents, and our children, for those of us still navigating all three relationships at once.
We've talked extensively about having the right asset allocation strategy for your own financial goals and risk tolerance. But as you enter the sandwich generation, you must also think about how to allocate resources across the people you love.
During my last visit with my parents, I went hoping to understand them better – their hopes, regrets, and dreams. What I also discovered was more about their financial situation, sparked in part by conversations around my articles. These talks can be difficult to initiate.
One approach that works: forward them a relevant article and ask for their opinion. If it gets a strong reaction, even a critical one that I'm a donkey, that emotion often opens the door to a more honest conversation.
Check out: A Financial Dilemma: Save Your Parents, Your Children, Or Yourself
Craft Your Underdog Story, and Believe It
With the market back at all-time highs, this feels like the right moment to talk about mindset. Those of you who invested aggressively have reaped tremendous rewards, especially since the start of 2023. The S&P 500's run has been almost comical, far outpacing its historical average annual return of ~10.5%.
In a way, it feels like we woke up one Friday morning to find stacks of $100 bills scattered across our driveways, there for the taking with nobody else around. We got here through discipline, yes, but also through a great deal of luck. Don't forget that.
Nice clothes, a luxury car, fancy trips, sure they're all great. But nothing, and I mean NOTHING, beats the feeling of being truly free. That's why I wrote a new piece to help you invest more boldly and build toward that freedom. The strategy starts with crafting your underdog story, and actually believing it.
Check out: How To Convince Yourself To Invest More Aggressively For A Better Tomorrow
To your financial freedom,
Sam
I'll be heading to the post office at the end of next week to send out more signed copies of Millionaire Milestones to those who completed their free financial review with Empower this year. Here's a post about my experience and instructions on how to participate.
Congratulations to everyone for staying the course and taking action. What a blessing.
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