Before reviewing my 1Q 2021 and discussing what’s next for various asset classes, let’s talk about hard things.

Waiting for the opportune time to propose after buying an engagement ring is hard. The ring just starts burning a hole in your pocket. But do you know what’s even harder? Writing an April Fool’s Day post and not responding to a single comment for two days! I’m sorry for tricking y’all folks. I hope you will forgive me. I’m a jokester at heart.

Ever since I was a kid, I’ve also been a dreamer. Over time, I’ve noticed the more you dream, the more good things tend to come true. It must be due to one part positive mindset, one part taking action to achieve your goals. If you go about your day-to-day like a zombie, never dreaming about a better future, I’m not sure anything special will ever happen.

Buying that beachfront dream home in Hawaii costs closer to $15 million, not $10 million as the online estimates say. Sadly, there’s no way I can afford it. The funny thing is, one of my good friends can easily afford it, yet he still refuses to live it up!

If the house can earn a $900,000 a year net operating income, a 4% cap rate would give it a valuation of $22,500,000. But it probably earns closer to $500,000-$600,000 a year as the house sits empty most of the time when asking between $85,000 – $250,000 a month in rent.

When in doubt, follow this real estate investing rule: Buy Utility, Rent Luxury. It’s much cheaper to rent a luxury home than to buy one. The ongoing maintenance costs are a killer.

In general, buying stocks on margin is a bad idea. However, the idea of buying stocks on margin has increased due to a long bull market and a drop in interest rates. More people are trying to get rich as quickly as possible thanks to what we see and hear on the internet.

Let’s quickly review why buying stocks on margin is a suboptimal move. We’ll then go through some terminology, a couple of margin-buying examples, and the dreaded margin call.

Let me share why I dislike investing in the stock market even in good times. Times are good now because we’re near all-time highs after a scary March 2020. Corporate earnings are rebounding. The economy is gradually opening up. There is light at the end of the tunnel.

The problem with the stock market is that despite great gains, any losses feel at least twice as bad. Even if the stock market losses are paper losses, it still feels very painful. And when you’re investing in good times, there is often a one-way direction bet up.

Sell too soon. Buy too early. Sound familiar? Welcome to the club. I am the King of making suboptimal trades due to fear and greed. Whenever I’m about to make a trade, I begin to have delusions thinking I’m smarter than the market.

After all, I need to have conviction if I’m going to put tens or hundreds of thousands of dollars to work.

Whether you like it or not, interest rates are rising once more. With corporate earnings rebounding and the end of the pandemic in site, the expectations for higher inflation are growing. Therefore, this article will discuss how to invest and profit in a rising interest rate environment.

Even though we are in a rising interest rate environment, I’m in the camp that interest rates will stay low for years to come. Here’s why:

• Information efficiency
• Economic slack
• Contained inflation
• Coordinated Central Banks
• The growth of other countries such as China and India and their continued purchasing of US debt
• The growing perception that US dollar denominated assets are the safest assets in the world
• A 35+ year trend of declining rates is telling us we’re more adept at managing inflation with each new cycle that passes

However, there will be points in time where investors will face a rising interest rate environment. After all, the Fed Funds Rate (FFR) is currently at 0% – 0.25% and inflation is picking up post-pandemic. The 10-year yield bottomed at 0.51% in late 2020 and has since climbed to roughly 1.7% at the time of this post.

With the S&P 500 at all-time highs and the U.S. national median home price also at new highs, inflation is clearly on the horizon. Therefore, investors need to shift their thoughts on how to invest and profit in a rising interest rate environment.

Do you have contingency plans fo a digital bank run? If not, perhaps you should. The markets are extremely frothy again and another downturn could happen. If there is a downturn, there will be another digital bank run that will put pressure on the money market system. It happened in March 2020, it may happen again.

Beware Of The Digital Bank Run

When the S&P 500 futures were pointing to another -5% opening on February 6, 2018 I got excited. After all, the S&P 500 closed down 4.5% on February 5. I get aggressive whenever the stock market corrects by 10% or more because history has shown positive returns in subsequent days and months.

The initial down 5% move was blamed on the 10-year bond yield jumping to 2.85%. But since the 10-year bond yield declined from 2.85% to 2.75% after the 5% stock market drop, and futures were signaling another 5% drop in the stock market, I figured it was time to deploy some significant cash. Fundamentally, corporate earnings growth and economic indicators were still sound.

Armed with $200,000, my plan was to use $100,000 to buy the morning gap down. I would then deploy the remaining $100,000 throughout the day just in case the stock market panicked even further. My focus was on buying growth stocks for further capital appreciation.

I set my alarm clock for 6:15am just in case, brushed my teeth, sat on the toilet, and fired up my Fidelity account to put in my $100,000 buy order.

Do you know who missed out on great growth stocks like Tesla, Apple, Netflix, Google, Facebook, and more over the last 10+ years? Dividend stock investors. For younger investors (<40), I believe it’s better to invest mostly in growth stocks over dividend stocks. With growth stocks, you increase your chances of accumulating more capital quickly.

You’d rather invest in a company that is providing more capital appreciation while you are working. After all, earning dividend income is less important when you have job income. Instead, building as big of a financial nut as possible with growth stocks is more important.

However, once you are retired or close to retiring, you can shift toward dividend stocks for income. You shouldn’t have as high of a tax bill in retirement due to a lack of W2 income. Further, dividend stocks are also relatively less volatile given their stronger balance sheets.

Dividend stock investing is a great source of passive income. In fact, I rank dividend stocks as a top source of passive income. The problem is, with dividend yields relatively low at 1-3% you need a lot of capital to generate any sort of meaningful income. Further, as a minority investor, there’s no way to improve the dividend payout ratio.

Even if you have a $1,000,000 dividend stock portfolio yielding 2% that’s only $20,000 a year in dividend income. Remember, the safest withdrawal rate in retirement does not touch principal. Further, you must ask yourself whether such yields are worth the investment risk.