After the S&P 500 hit 7,500, I finally decided to de-risk. My target for the year was 7,300, so rather than get greedy, I'm calling it a win and heading into hot dad bod summer with less stress.
The main trigger for taking profits in my tax-advantaged accounts (rollover IRA, SEP IRA, Solo 401k) was the 10-year bond yield creeping back to 4.5%. That's the #1 indicator I follow. It's the risk-free rate that tells me where money wants to go. Locking in 4.5% after a 10%+ YTD return in stocks, after being down 7%? That's a trade I can sleep on.
Yes, Morgan Stanley, who was an ultra-bear in 2023 and 2024, bless their hearts, has now lifted its year-end target to 8,200 on the back of stronger-than-expected earnings growth (+20% YoY vs. the +12-15% estimated at the start of the year). That's another ~9% upside from here.
Profit margins are also expanding, as perhaps AI really is improving productivity. But I moved from 100% equities to roughly 70/30 anyway. I'd still love for markets to keep climbing. I'm just not betting the whole house on it due to a relatively attractive risk-free rate of return.
Below is a great chart that shows how the 10-year Treasury yield is now roughly at part with the S&P 500 forward earnings yield. As a result, bonds look relatively attractive here.
Using the Gains to Buy Peace of Mind
If you've been invested in the S&P 500 since mid-2022, you're up roughly 100%. Based on long-run historical returns of ~10% annually, you should be up closer to 40%. That extra 60% is house money, and I think you're allowed to spend some of it to live a better life. In my case, a month in Hawaii with the family in July. I can't wait to eat all the local Hawaiian mangoes too. Yum!
Here's what's striking me lately: I talk to people in real life who tell me they've made a fortune in the markets. Then I ask what they plan to do with it, and they just shrug. The same people who hate their jobs, or feel guilty that their spouse is grinding away at something soul-crushing, won't connect the dots between “I have more money” and “I could change my life.”
Online, you Financial Samurai readers are different. You think in terms of purpose and intentionality. Offline, it's more like financial sleepwalking.
So help me out here folks. Why aren't more people using their excess financial gains to break free?
Read: Failing To Convince Anybody In Real Life To FIRE Despite Huge Gains
A Bubble Watch Chart For Perspective
A lot of folks say today feels like the euphoria of 1999, and I have to admit, it does in certain sectors such as semiconductors, memory, and private AI companies. However, the valuations of public tech companies like Google and Apple are still only about one third to one fifth the valuations of 2000 bubble stocks like Cisco.
The chart below compares the price performance of the two periods. So I'm still hoping for a blow-off-the-top rally in public equities, because it might already be happening in private AI companies.
Time Fixes Most Financial Mistakes
One reason people freeze up: they got burned once and never fully recovered psychologically. Every investment pitch sounds incredible upfront. Every startup will be a unicorn. Every deal promises top-tier IRR. Then reality happens.
But here's the thing. I don't know a single person who got extraordinarily wealthy by only investing in index funds. Every person I know who built huge wealth took more risk than average at some point. The S&P 500 is the floor, not the ceiling.
My new post makes the case that you should keep taking calculated risks, because financial mistakes shrink over time. The market goes up. Incomes grow. Perspective widens. What felt catastrophic at 30 is a footnote at 50.
Keep swinging. One grand slam changes everything.
Read: Time Fixes Most Financial Mistakes Because You Grow Richer
When Exhaustion Becomes Too Much
Finally, maybe I decided to take some profits not because of extended valuations, but because I'm simply mentally fatigued.
Perhaps you are too, with all the geopolitical whiplash, the kiddos you've got to take care of after a hard day's work, the constant reminders from Dario Amodei that Anthropic will eliminate your job and your children's while he gets rich, and the parents you need to take care of as they slowly lose their ability to self-govern.
As I was soaking in the hot tub last week, I came to the realization that life is simply one financial quest after another. Just when you think you're done with one quest, another one knocks on your door, asking to be taken in.
So please, folks, if you're feeling burned out, take a step back and focus on you. If you're always helping others first, it's finally time to take care of your own mental and physical health. You deserve it!
Read: Life Is Simply One Financial Quest After Another
To your financial freedom,
Sam
P.S. I ended up investing more in Fundrise's flagship real estate product after doing a deep-dive analysis. Anthropic
If you were forwarded this free weekly newsletter, you can join 60,000+ others and sign up here. If you'd like to receive my posts directly in your inbox as soon as they are published, with no ads for the first two hours for easier reading, sign up here.