Invest with logic, not emotion

With interest rates rising across all treasury bonds, there comes a point where owning bonds becomes more attractive than owning stocks – where you’re willing to have a greater than 50% weighting in bonds in your portfolio. After all, treasury bonds offer a guaranteed return if held to maturity and they are state income tax free.

Even with the 10-year bond yield rising to ~3.25% on October 10, 2018 from just 1.46% on July 1, 2016, is 3.25% a high enough risk-free rate for investors to make a shift mostly towards bonds? Probably not.

In a research report written by Savita Subramanian, Head of US Equity & Quant Strategy at Bank of America Merrill Lynch, she believes the 10-year bond yield has to reach 4.5% – 5% before US equities start to look less appealing than bonds.

Take a look at this chart.

Out of the 25+ financial accounts I track online, there are only two accounts that I really care about at the moment:

1) My after-tax investment account I created in 3Q2017 after I sold my SF rental house.

2) My real estate crowdfunding portfolio that has mostly investments outside of expensive coastal cities.

I care about these two accounts the most because before I sold my house, I had a different investment strategy for this portion of my net worth. I had originally wanted to hold the SF property I bought in 2005 forever. But after a good run up since 2012 and with a new set of responsibilities as a stay at home father, it felt like it was time to simplify life.

How I reinvest the ~$1.8M in proceeds will largely determine whether I made the right move to sell the house or not. If I lose money while the house continues to appreciate in value, then I will feel like a stupid idiot. If I lose money while the house starts declining in value, I’ll feel fine. If the house appreciates more than my reinvestments, I’ll at least take solace in all the time and stress saved from not owning.

I’ve already conceded it is unlikely I’ll make more money from my reinvestments than if I continued to own the house given they lack the leverage my house had. The house had a market value of $2,740,000 with an $815,000 mortgage. Further, the SF Bay Area economy is bananas.

Let’s see how the re-invested proceeds have been doing since San Francisco housing prices are up 7-8% year over year. Although who really knows for sure the price given every property is unique. 

On September 15, 2008, Lehman Brothers went bust. I remember this day clearly because I made a $200 side bet with my friend over the weekend that the US government would bail them out. To my surprise, the US government didn’t rescue Lehman, and the stock cratered that Monday and never recovered.

Despite all the economic devastation, I wish I could rewind time. I’d rather be 31 than 41, simply because I love life and want to live as many years as possible.

The period between 2008 – 2018 was the most exciting 10 years of my life. Here are some of the lessons I have learned since the financial crisis.