Financial Samurai Mid-Year 2017 Investment Review

Financial Samurai Mid-Year Investment ReviewTo eliminate financial distortion, make sure I'm within my risk tolerance band, and push myself to continuously reinvest cash flow in order to survive permanent unemployment, every quarter I'll be reviewing my investments. I've found that after even just a couple months, if I don't write things down, I simply cannot remember how much and what I invested in.

For the past five years, my goal has been to earn a conservative 4% – 6% yearly return on my overall net worth given I reached my target number. It felt so amazing to escape the rat race in 2012, I was comfortable with what I had. Now, however, thanks to hedonic adaption, I've become used to the freedom and have turned greedier with my desired returns.

Today I'm shooting for a 10% yearly return based on my following new money investment allocation for 1H2017: 57.4% Real Estate Crowdfunding (10% target return), 11.27% Bonds (4% target return), 9.41% Stocks (10% target return), Venture Debt 3.3% (12% target return), 8.27% Mortgage (4.25% return), and Home Improvement 10% (20% return).

Let's dig deeper into the numbers!

Financial Samurai Mid-Year 2017 Investment Review

April Investments

Stocks: Unlike in 1Q2017, where I just increased my exposure to the S&P 500 through an index ETF, I purchased $10,000 of Netflix at $141/share after 1Q results. At the time it felt a little painful to purchase since my original position was at $92/share. But I loved their portfolio of original content despite their massive cash hemorrhaging. Their business is sticky and inelastic. They can easily raise prices by 20% a month and lose less than 20% of their customer base to increase revenue. Reed Hastings, the founder, spoke at my 2006 Berkeley-Haas MBA commencement. Wish I had put my life savings in the name at the time!

Mortgage: Paid down $3,000 of my 4.25% Lake Tahoe vacation property mortgage. My goal is to pay random small amounts each month so that I feel no pain paying down my worst investment ever. If I see a Bank of America branch on my way back from lunch, I may swing by and pay down whatever is in my wallet. The goal is to pay the $346,000 mortgage off by June 15, 2022.

Real Estate Crowdfunding: I invested $250,000 in the RealtyShares fund in January 2017. Instead of inputting the entire $250,000 in January, I spread it out over a six month period. It's really just accounting as I didn't know exactly how quickly they'd be able to invest in the 10+ deals they have in their mandate.

In April, the fund made a $600,000 investment in the acquisition and renovation of College Town Tucson, an 88-unit, 247-bed student housing apartment complex several blocks from the main campus of the University of Arizona in Tucson, AZ. Constructed in 1972 and partially renovated in 2006 and 2013, the Property consists of a mix of two, three and four-bedroom units and includes amenities such as a clubhouse, fitness center, swimming pool and property-wide Wi-Fi.

I've always wanted to gain exposure to an apartment complex in a college town due to the consistent high demand. I just never wanted to physically own and manage such a property due to the frequent turnover. Can you imagine what a PITA is to be a landlord of a student housing complex?

RealtyShares College Town, Arizona Investment
I can imagine all the parties in the hot tub now. IRR target: 16.5%. 5-year hold. $20K minimum investment. Reminds me of a scene from Breaking Bad.

Unfortunately, RealtyShares is no longer accepting new investors on their platform. I suggest taking a look at Fundrise, the pioneer in eREITs. They are also currently working on an Opportunity Fund to take advantage of tax-efficient Opportunity Zones. Fundrise was founded in 2012 and is open to all investors – accredited and non-accredited alike.

Home Improvement: After my landscaper finished my backyard, I asked him to landscape my side yards and front yard. I was extremely pleased with his workmanship and his price. As a result, I referred him to a friend who hired him to do ~$25,000 of work. I'm now 100% done with my home remodeling/expansion projects for the fixer which I bought in early 2014. It was a long journey due to the complexities of the inspection system and the idiosyncrasies of each contractor.

May Investments

Bonds: Invested $26,600 in two, 20-year maturity, California municipal bonds with a yield to worst of 3.8%. Based on my estimated 32% effective tax rate (federal and state), the gross yield is therefore 5.5%. Instead of putting more into bond funds, like I did between November 2016 – January 2017, I decided to focus more on individual bonds so that I know I'll get par value ($100/share) back upon maturity plus the coupon payments for all those years.

Many bond funds have rallied back to pre-election levels, so I felt hesitant allocating more money. If you add 1.5% for the 6-month yield to the principal appreciation so far, we're talking a pretty healthy ~6% total rate of return.

Related: The Case For Buying Bonds

Municipal Bond Returns
Municipal bond returns YTD are not bad once you include the coupon payment

Mortgage: Paid down another $5,000 of my 4.25% Lake Tahoe vacation property mortgage. I decided to rationally no longer pay down my 2.375% rental home mortgage and my 2.5% primary home mortgage until the Lake Tahoe vacation property mortgage is paid off.

Real Estate Crowdfunding: The RealtyShares fund made a $700,000 common equity investment in the Virginia Crossing Hotel and Conference Center, a full-service hotel located in Glen Allen, Virginia.

Opened in 2001, the Hotel comprises three colonial-style buildings with guest amenities, including 2 full-service restaurants, an outdoor swimming pool, fitness center, 24 conference rooms and a 4,700 SF ballroom. The Hotel is located adjacent to The Crossings Golf Club, one of the greater Richmond area’s premier semi-private courses, and is strategically located at the convergence of Interstates 95 and 295.

I'm very excited about this acquisition and repositioning because there's a special place in my heart for southern Virginia since I went to school 40 minutes south of this hotel at The College of William & Mary. I love colonial style buildings and would happily retire in Williamsburg for three months of the year if I wasn't living on the west coast.

Virginia Cross Hotel and Conference Center RealtyShares

Home improvement: I decided to fulfill my dream of getting a hot tub for $15,825 now that the back yard is done. The whole process took nine months since I first visited the show room. Since installation, I've averaged about five hours a week in the hot tub. The maintenance is easier than expected. What is kind of scary is how much home improvement costs add up. I can see how a homeowner can spend an endless amount of money upgrading their home if they don't set a limit. I'll be putting together a home remodeling guide in the future.

June Investments

Venture Debt: I received a capital call of $3,001 for my second venture debt fund investment. For these types of funds, you commit a certain amount of money, and the fund will call a percentage of your commitment over a certain period of time, usually within two years. The first venture debt fund I invested in almost three years ago is looking like it will return 13% a year net of fees because they've almost returned all the capital. As a result, I'm considering investing more capital into the second fund now that the guys have even more experience and a larger fund to spread out the expenses.

Mortgage: I was paralyzed with what to do in June since bonds and stocks did well, so I decided to pay down $22,000 more of 4.25% mortgage debt. When in doubt, pay down debt.

Related: Debt Optimization Framework For Financial Independence

Real Estate Crowdfunding: The RealtyShares fund approved a $775,000 JV equity investment in the Sheraton Dallas Forth Worth Airport Hotel, a 302-key full-service hotel located in Irving, Texas. DFW International Airport is ranked the 4th busiest airport in the US, and the DFW region is booming. The Hotel is approximately 15 miles northwest of downtown Dallas, one the region’s largest employment centers.

I'm bullish on the heartland of America. The fund had already made an Austin, Texas multi-family residential property investment in December 2016, and I was hoping they'd continue to invest more in Texas. The Dallas area has one of the most robust income growth trends in the nation.

Sheraton Dallas Forth Worth RealtyShares Deal

Capital Commitment Review

$272,426 of new capital was put to work in 2Q, which equates to $90,808 a month on average. This figure surpasses my goal of $30,000 – $50,000 a month, but it's due to arbitrarily spreading out my original $250,000 RealtyShares investment across six months.

If I take out the entire $250,000 real estate crowdfunding investment, I ended up investing $32,333 a month on average. With a baby on the way, I knew I wouldn't have as much time to focus on my investments this quarter. Hence, I knew that if I invested in nothing else, I would average $41,667 a month for six months ($250,000 / 6 months).

When income generation is good, it's important to stay disciplined and maximize your investments in order to prevent lifestyle inflation. Pay yourself AND your investments first! When difficult times inevitably come, your investments will hopefully carry you through until the next bull run.

Pro Forma Performance Analysis

Mid-Year 2017 Investment Review Financial Samurai

I've allocated capital to achieve a potential 10% objective return based on my risk tolerance (green). Of the $435,571 in 1H invested capital, I'm looking to return roughly $42,744 based on my base case objective.

I've also included my current estimated returns, which comes out to about 15% (blue). The only thing that looks aggressive is a 50% return on Home Improvement. But the 50% return could be conservative because competing landscaping bids were 100% – 150% higher since my guy did the job as a side hustle for cash. For example, one competing landscaper quoted me $50,000 to do my front yard, and my guy did it for $17,000, including materials. Further, it's a bull market on the west side of SF. Remodeled houses are going for tremendous premiums.

Although the RealtyShares fund has a 15% target IRR over five years, and all three investments in 2Q2017 have target IRRs greater than 15%, I'm keeping the current estimated return at 10%. All the deals are equity deals, so it's good to stay conservative until there are exits.

Bonds have done very well as you saw in the chart above, and my stock returns have been solid due to investments in Amazon in 1Q and Netflix in early 2Q. Due to valuations, I still can't get excited about putting a large allocation into stocks, so I'll just wait for a pull back if one ever comes to invest a more meaningful amount of capital. At least I didn't short the market!

S&P 500 Valuation 2017 - Case Shiller P/E Ratio

Going forward, my Home Improvement weighting will decline, but my Real Estate Crowdfunding, Bonds, and Venture Debt weightings will increase. The total return target will still be 10% a year.

My biggest financial fear is not a bear market, but a precipitous decline in income. I feel like a young man again because contributions are currently far surpassing returns. I also want to have enough fire power to invest during a downturn. Therefore, despite the constant sleep deprivation of being a new father, I promise to keep slicing away. After all, a 50% increase in family size warrants a 50% higher wealth target right? Let's rock.

Investment Management Recommendation

Run your investments through Personal Capital's free Investment Checkup feature to see how you're doing and analyze your current asset allocation versus their recommended asset allocation based on your financial objectives.

According to the chart below, my public investments are up 9.78% YTD, which is underperforming the S&P 500 by 3.9% and outperforming the US Bond index by 6.74%. I'm happy with the results so far, because I'm shooting for a 10% annual return with my new investments, and a 4-6% annual return in my overall net worth.

Financial Samurai Investment Performance

Here is a chart highlighting my current public investment allocation versus Personal Capital's recommended investment allocation. The 16.6% weighting in Unclassified are manual entries of my private fund investments in venture debt, private equity, and real estate crowdfunding. Therefore, my Alternatives weighting is closer to 17%. Because I just sold my house, my cash portion is much higher than recommended.

Personal Capital Investment Allocation Recommendation

Overall, I'm quite happy with my investment allocation in the current environment. You can find your custom Personal Capital Investment Checkup under Planning -> Investment Checkup to see if your investments are matched up with your financial objectives.

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77 thoughts on “Financial Samurai Mid-Year 2017 Investment Review”

  1. Sam,

    I’d be really interested in seeing a more detailed breakdown of your RealtyShares performance, as I had been bullish through 2017 as well (14 deals for $125k) but haven’t seen near the advertised returns. Here’s my August snapshot: $125k Capital active ($41k debt, $84k equity), zero (0) August return. It would be nice if this situation was at least explained with some communication, but the most communication I’ve received is when I should be expecting distributions. This would be great, except it hasn’t happened, ultimately making the company seem more unprofessional.

    This doesn’t even include another $25k that they had in their possession, interest free, for over 3 months for another deal that fell through. Their eventual communication included that they ‘accidentally’ debited funds before (months before…) an executed commitment letter.

    There have been interesting deals popping up, but until I see a real return I have to sit out.

    1. Hi Derek,

      I invested $250,000 in the RealtyShares Domestic Equity fund (invested in around 10 deals so far) earlier in 2017 and have had some minor returns here and there. But because it is a 5 year fund, and all the deals are equity, I don’t expect anything significant for at least 1 year if not 2 years because there needs to be renovations and a sale before I see any returns.

      It’s called the “J-curve” when investing in private deals. Returns go down or flat before going up.

      If I invested in debt, then I would expect to see the advertised rate of interest within a couple months. Are you not seeing interest payments on your debt portion yet?

      I just invested another $250,000 in the RealtyShares fund b/c I just sold my rental house. I was going to invest another $500,000 or $750,000, but I’m just legging in slowly.


      1. Right, as the mortgager on debt deals, I’m due the monthly interest payments (at least), otherwise additional penalties and interest are due. It’s not that I haven’t received any payments for any of the deals… for a few I have… but even for them they’ve been inconsistent. For my first debt deal I was paid interest consistently for the first 3 months, but then haven’t been paid at all for the last two. Again, without any communication. Let’s just say that’s the highest performing deal so far. I don’t think the argument can be lack of diversification/’unique circumstances’ either… none of my eight (8) debt deals that are active and in-progress paid in August.

        I’m hoping for a turnaround, as the platform really fills a gap in my portfolio that also fits my lifestyle nicely. I want RE exposure, but already work 24/7 between a corporate job and side-hustle/startup.

  2. Out of curiosity, have you thought about investing in early stage companies on AngelList, SeedInvest, etc.? A lot of these investments look like total moonshots so the risk profile probably isn’t great for someone who’s already doing well, but I gotta imagine that a former banker has as good of a shot as anyone at figuring out a good mix of companies to invest in.

  3. At the mid point, you are having a good year. Thanks for sharing your personal report card. I appreciate the content you publish. I enjoy learning about all of the alternative investments that you have in your portfolio.

  4. Solid planning and risk management! How do you approach tax minimization. Stocks vs real estate? With Realtyshares, are you expecting after tax returns on an equity deal to be more attractive than a debt deal ? I am considering 1031 exchange as a strategy as well while considering Realtyshares.

    Thank you very much.

  5. Wow, that’s quite the money shuffling ;-). Considering the risk aversion, the return on investment is pretty impressive! Well done.

  6. Very nice and comprehensive rundown FS! :-) How are you calculating the Home Improvement 10% (20% return)? I see the table, but wouldn’t this be an improvement to be depreciated?

    I’ve invested a bit in REITs, but need to do a compare and contrast with that VS Real Estate Crowdfunding (REC). Do you think REC is better than REITs for now and if so, why?

    1. I’ve also included my current estimated returns, which comes out to about 15% (blue). The only thing that looks aggressive is a 50% return on Home Improvement. But the 50% return could be conservative because competing landscaping bids were 100% – 150% higher since my guy did the job as a side hustle for cash. For example, one competing landscaper quoted me $50,000 to do my front yard, and my guy did it for $17,000, including materials. Further, it’s a bull market on the west side of SF. Remodeled houses are going for tremendous premiums.

  7. I have been 100% equity since 2008. Made sure I maxed out 401k and catchup since then and have done well. Since I started reading your blog a few months ago I am starting to get the feeling that I should reduce my risk just a tad. 4 more years in the corporate treasury world and I am headed to tax free Florida.
    I took your advice and started a blog over the weekend.

  8. Great work Sam.

    Couple of questions:

    1. Are you invested in Cryptocurrency at all? If so what % of your overall portfolio does it make up?

    2. Now you’ve owned your hot-tub for sometime, do you still consider the cost and maintenance worth it?

    1. 1) Nope. I don’t fully understand it.

      2) Yes. I just replaced all the water and it was pretty easy. I don’t even feel the cost, and maintenance is not hard once you get the hang of it. You just need to keep the water in a particular balance. The hot tub could be one of the best investment I’ve ever made Actually!

  9. fiinsingapore

    Hi Sam, what are your thoughts on maintaining a cash reserve to take advantage of low prices in the event of a market crash?

    1. Cash is awesome, even in a bull market. It provides security, peace of mind, and ammunition to buy things on sale.

      There are ALWAYS investment opportunities every day. One just has to spend time looking.

  10. Exciting few months of investments Sam, those are going to be paying you for years to come. It’s great to start to see the type of diversification that is available out there.

  11. “After all, a 50% increase in family size warrants a 50% higher wealth target right? Let’s rock.”

    Obviously a personal choice but this makes no sense to me at all. A child is it’s own life – you just play a financial role for 20 years or so. Think looking at it that way is good for you and good for the kid.

    Stretch goals are cool and all but beware of overreach. Knowing when you’ve got enough and taking chips off the table is key.

    1. That’s the beauty of personal finance. We all have our own personal goals. I love to be challenged b/c it doesn’t feel good running in place. Also, it feels very motivating to work towards a specific goal.

      What might sound like overreach to you might be a nice 7 minute mile jog for others.

      At the end of the day, the more you have, the more you can give away.

  12. So no more P2P lending? I probably missed it but what did you do with your Lending club account? I’m still actively investing in LC with a current 8.6% yield. Been in it for 15 months now and so far so good, but I’m always a little worried that the default rate will go through the roof if there is a recession….

      1. Thanks for the reply Sam. Are you withdrawing all your funds from LC ? Or are you letting your capital sit in there and not investing any additional funds? I agree, I’m also in realty shares (a lot smaller of a position then you). I see a little risk with LC, but I am getting decent returns. Not sure how long I will keep it funded, but the prosper article did worry me.

  13. Ms. Conviviality

    We bought a Hurricane deck boat. It’s a great boat for entertaining with seating in the front as well as in the back. How’s this an investment? My husband’s friend runs a boat rental business and we added our boat to his fleet. His friend manages the rentals and we get 60% of the profits. Rentals have been good. If we continue at the current rate then ROI would be 75% annually.

  14. Cool, seems like you went hard with on a different flavor of your bread and butter (real estate). Noticeable missing from this years list is peer to peer lending and robo advisors. Personally, I’m lightweight on alternatives so still messing with peer to peer. Also been allocating some towards the Jobs Act stuff. Have done about a handful of those. Haven’t done the commercial realty sites yet. That’s a form of alternatives so may look into those also.

  15. I enjoyed your post. I started investing in Realty Shares after reading some of your writing. I wish I understood more of the #s of some of these deals, I’d put in more $. Been paying down debt too. Appreciate the insight!

  16. Congrats in surpassing 10%. I’d love to see a post on how you decide when to buy a stock, muni, bonds, etc.

    What I’ve read in the year or so since I started following you’re great at knowing when to hit the trigger

    What do you look for? What analysis do you make?

    Keep up the great work and enjoy those early days of fatherhood… they go by way too fast!


    1. Let me think about a post on that subject. It may be hard b/c each investment has different reasonings for them.

      When an investment is really interesting to me, I will just write about it to formulate my thesis and see what I’m missing.

      For example, I was super bullish on bonds after the trump election, hence I wrote: The Case For Buying Bonds: Living For Free And Other Benefits. I proceeded to buy about $500,000 worth of bonds from Nov, 2016 – Feb, 2017, and the sector has done well. I would have never bought $500,000 in stocks, even though stocks have done better b/c of my risk aversion. I bought $50,000 worth of stocks instead.

      I became very bullish on Midland and Southern real estate as well, so I wrote Focus On Trends: Why I’m Investing In The Heartland Of America. Now readers are seeing 6 months+ later that I’m following through with what I believe in.

      I’ publishing these quarterly investment reviews to make sure my investments are risk appropriate as well, hence my, “What could go wrong?” question.

  17. Thanks for the commentary. Are you letting Realtyshares invest for you on auto-pilot?

    I also invested in the Virginia Crossings Hotel, I liked it because 1) it had a decent entry cap rate and I like that its moving to Hilton, and 2) the sponsors put down 30% of the equity. I hope we all do well on that.

    Sheraton DFW is an example of a real estate deal that might be exciting on a deal level, but the sponsor economics are way too favorable to them. They only put in 5% of equity, and get 30% of returns above 8%…it’s way too much in my opinion. But I hope it works out for you.

    1. Thanks for the feedback! Yes, I invested in their fund. The whole idea is that they have a committee that tries to pick the best deals that go through their platform. I figure, who knows best than them? I’m happy to pay a .85% fee every year on my capital for them to do the work for me. I’ve already given them my thoughts on heartland real estate and various metrics they should consider, and it’s up to them to decide what’s best.

      If they don’t perform, then they hurt their future chances of raising new money for a second fund and so forth. I love the asset class, I just don’t love to do any work anymore. I’d rather just focus on my on my business which is what makes me happy.

  18. First of all, thanks for posting! This is great content and it’s really interesting to see how you think about your investments. I clearly have a ways to go :)

    Second, a question: if you’re holding CA munis, why do you not put money in NAC? . I bought in a while back, its yielding 5.5% tax-free and I still haven’t figured out what the catch is. I’d love to hear what someone with more financial experience than me thinks.

    1. Good question. What is the front load fee, or fees in general? Good be a good idea!

      The only issue with funds is that its performance is not a guarantee like buying a bond at par or below par and getting paid back at maturity at par.

        1. You’ve always got to think about what tranche of money you’re investing.

          I really sliced and diced my money so that I don’t blow myself up. There’s a conservative portion of my investments and then there are much more aggressive portions. Or municipal bonds, this is obviously my conservative portion of my money or I just don’t want to lose.

    2. I would worry about NAC not earning its distribution. Its saving grace is the discount which would cushion that blow should it come. There aren’t that many alternatives if you want to stay with a CA muni CEF. I’m in a fund whose distribution I think is safe but has a high premium and low liquidity.


  19. Oslerscodes

    To me the most impressive part of all of this is calling the hot tub an investment.

    Appreciate all the transparency around your decision making.

    Always wondered about deferring aggressive repayment of the Lake Tahoe mortgage at the expense of cheaper borrowed money for your primary residence, condo and rental. Goes to show how bias effects even some of the best.

    Great quarter.

    1. Gotta say, the hot tub has been an AWESOME, awesome personal investment, but I certainly realize that it’s not for everyone. The returns from my home remodeling in 2Q have all come from my landscaping, with the base case scenario of simply arbitraging the cost difference.

      But I will say that now I know how much of a PITA is to install a hot tub properly, I would definitely pay a premium if a house in SF has one! it’s low 60s on average all year around = perfect hot tub weather!

  20. I’m still focused on the really simple first steps, pay down debt and max out the ROTH. To encourage myself to learn when the hurt will be smaller, I have invested in three penny-stocks. Hopefully this will get it out of my system and I can focus as planned on the S&P500 and then some international index funds.

  21. “I decided to rationally no longer pay down my 2.375% rental home mortgage and my 2.5% primary home mortgage until the Lake Tahoe vacation property mortgage is paid off.”

    Will you be paying down those low interest rates mortgages once those other properties are paid off? I have a 2.4% 10 year mortgage with about 6 years left on it. Am I better off paying that mortgage off or deploying my capital into other markets that pay more than 2.4%?

    1. I definitely will be continuing to pay down extra principal here and there, even though the rates are low. I have NEVER regretted paying down debt, probably b/c I continue to have a good income stream that’s beyond what I’m comfortable investing in risk assets.

      If my income was lower than what I’m comfortable investing, then I might not feel as good b/c I wouldn’t have any fire power to invest further.

      Based on my FS-DAIR framework, I will always try and use 25% of my disposable income to pay down debt. Check it out. I think it’s a great system to follow.

      Related: Pay Down Debt Or Invest? Implement FS-DAIR

  22. Nice post and thanks for sharing the details! What is the reason for altering course from index investing to individual stocks? Keep us up to date on your experience with crowdsourcing. I’m interested in the concept, but haven’t invested in that area yet.

    1. It’s a good question. I try to allocate 5% – 10% of my capital towards higher risk bets. This is my “Punt Fund” or “Funny Money” fund. Because I feel I was missing out on the bull run, I decided to try and pick individual higher growth names to try and “catch up.” This is the emotional side of investing at work, which can work and can fail.

      I am glad though that I invested the $250,000 in the RealtyShares fund, because the investments the fund has been made have all been very strong so far.

  23. “When in doubt, pay down debt” I totally agree. I’m “close” to getting our family 100% debt free before another bear market comes…

  24. You are cranking, Sam! Your son is going to have quite the estate to grow into!

    In Q2 my investments were about $65K or so with half of that going to publicly traded stocks and the other half into a start up locally. I’m also the advisory CEO working for sweat equity part time while still hustling at my job full time.

    The other start up I’ve invested in is successfully raising more money (to hire more engineers and grow at a faster pace than they already have) at a share price that is a bit over 2.5X what I bought in at but the conclusion of a successful exit is still not there yet.


  25. This is fairly similar to what I have been doing this year. Few US stocks, more international stocks, a few munis, but mainly real estate syndicate deals.

    Additionally, I am looking at alternatives like litigation funding due to significantly higher returns, can be 15-20%+ and not correlated to the market.

  26. Got a good laugh when you wrote, “If I see a Bank of America branch on my way back from lunch, I may swing by and pay down whatever is in my wallet” haha love it.

    Great way to both keep track of your investments and teach people in the same post. Keep hustling brother!

  27. Sam — enjoyed this post and agree on being unable / unwilling to invest a chunk in equities just now. At least in the index — certain individual stocks may be fairly valued but the index is not.

    I like your focus on the heartland. There’s value away from the coasts. Some of it is available via crowdfunding but much of it is still local.

    I hate when people link in comments … but I would genuinely appreciate your thoughts on my experience investing in farmland: How Rich’s LLC Turned $30,000 into $200,000 — A Story About Brothers, Bubbles, and Prairie Dogs.

    Unfortunately I don’t think there’s any way for the average Joe to invest in something like farmland, other than through select hedge funds or, more generally, commodities. That said, my overall take is that there are always opportunities to invest, just not always in the easiest / most common vehicles (aka the S&P 500). –Rich

  28. Mr. Freaky Frugal

    I appreciate the level of effort and analysis you put into your investing. Really impressive.

    My investments are simpler – mostly Vanguard Index Funds (International stocks/bonds, US stocks/bonds, US REIT) with simple Value and Size Factor tilts.

    I’m also concerned about US Market Valuations that you allude to with Shiller PE. I rebalance my asset allocation once per year and I mechanically slightly adjust US Stock percentages based on Shiller PE. I realize that Shiller PE is far from perfect (due to accounting changes, dividend yeild changes, etc.) but it can be used as a rough barometer on whether the market is more likely to go up or down. Time will tell how well this works for me.

    1. I actually wish I had the confidence to invest more heavily in the public markets. I’d pay less fees and my portfolio would be so much easier to track. I just don’t have the confidence b/c I spent my career working in public equities, and I’ve seen SO MANY people blow themselves up in the stock market. These were very smart people too.

      I’m been programmed to be wary of stocks ever since the Asian financial crisis in 1997.

      BUT, what has helped me get long equities is structured notes with downside protection.

      Related: Investment Ideas At The Top Of The Market

      1. Sam,

        How did you see people blow themselves up in equities? Can you share more? Were they using excessive leverage or selling short? It seems that if you are not on margin nor writing short positions that are not covered, while you can suffer a loss- blowing up completely wouldn’t be possible, right?


        1. Yes, buying stock on margin was common. Taking out a home equity line of credit to buy stocks was also popular.

          Exercising your options and NOT selling was another common mistake. Was bad since there was a tax bill too.

          And also, being up large in general only to lose. When downturns hit, people aren’t as confident as they think, often times b/c they then start fearing for their jobs or lose their jobs.

  29. Thanks for putting this together, Sam! I need to start doing the same thing with my investments soon. So far this quarter, I’ve been focused on buying bonds (both muni and standard), dividend stocks (I put a pretty significant amount into AT&T before it popped ~7% this last week), and socking away some cash for a really nice rental property we’re trying to acquire through a probate sale in Los Angeles. I’m excited for this deal, and I’ll try to let you guys know if it goes through, as well as give some more details on the financials.

    1. I saw that AT&T move! Nice timing there. I wish I paid attention more to individual names. I just don’t have as much time anymore with baby duty. Good luck on the LA deal.

      1. Thank you! I honestly don’t do much with individual stocks either, but I keep about 10% of my investments in a separate account to give me something fun to play around with. I was lucky enough to buy some stocks that grew 70-100% (netflix, tesla, and apple, although that’s only up about 40% for me), so I’m slowly cashing in on my returns after I get to long term capital gains and buying dividend stocks.

  30. Nice post, Sam – thanks.

    On your questions to readers:

    What type of investments did you make in 2Q2017?

    –> Slowly building exposure to a few individual stocks in a taxable brokerage account (Robinhood). Still less than 1% of total net worth (bulk in 401k or roll over IRA index funds – majority of net worth – and Roth IRA Vanguard REIT Index – about 20% of total net worth).

    –> Considering further accelerating 401k contributions for the year to potentially max out early vs. accelerating a potential “down-payment” fund. (Your other article on 401k vs down payment was very timely.)

    How are you feeling about the current investing environment?

    –> Slow and steady and dividend heavy. I currently DCA but do look for certain drops to throw in a larger contribution (similar to your vacation property mortgage mentality or when excess cash is available).

    Any risks you see from my 2Q2017 asset allocation?

    –> Your passive income is impressive and complemented with your investments, you appear to be well diversified. Interesting how you mentioned that you’ve “…become used to the freedom and have turned greedier with [your] desired returns.” I’m not nearly as free (yet) but feel the same way when I do take a day-off from my “regular” job to work on other projects.

    Where can everything go wrong?
    –> Who knows?

    I’d find a mid-year passive income report interesting. I’m currently working on a blog that will cover similar topics but with a different personal twist.

    Great site. As always, thanks for sharing.

    1. If you can, max out your 401k and save 20% of your after tax, after 401k contribution for your downpayment.

      Yes, when it’s a raging bull market, FOMO starts to take hold. I’m careful not to go crazy and won’t go on margin to buy stocks, but I do want to try and make my cash work for me more. I’ve got too much cash now based on my income. Cash is great if you have a lot of expenses or a tenable income stream, but my income has thankfully held strong. I’m just waiting for a decline, but it’s not coming… yet.

      Good luck w/ your site!

  31. For me, I am diversifying my investments into two streams, real estate and the stock market. I don’t invest in bonds as my portfolio is pretty aggressive. I am actually using the equity in my home to invest in rental properties and dividend paying stocks. Hence, investing in bonds is not tax efficient and I may not be able to cover the interest cost with the return on the bonds.

    I would be interested to know how tax efficient are on your overall income streams given that rental income and interest from bonds don’t get preferential tax treatments.

    1. Hmmm….

      Rental income gets shielded away due to depreciation, which is a non-cash expense.

      Municipal bond holders pay zero federal and state income taxes if they hold their state’s municipal bond.

      What are the preferential tax treatments you are referring to? thx

      1. Hi Sam,

        I am from Canada. For us, the preferential tax treatment is when that particular source of income is taxed less than our normal income. For example, only 1/2 of our capital gain is being taxed.

        From reading your explanation, it seems like the muni-bonds is being taxed preferentially if you live in that state.

        1. Got it. In the US, there’s mortgage interest deduction and $250K/$500K in tax free profits if you sell as a single/married person.

          For muni bonds, you can buy an out of state muni bond and pay zero federal tax, only state tax on the income, if your state has income tax. In the US, there are 7 states that charge 0% state income tax such as Washington, Texas, and Florida.

  32. *Love* reading these updates – gives us some great insights into your decision making process, and (as always) the explanations for why the specific moves were made are clearly and concisely delivered.

  33. Sam, it looks like you netted 30% annual gains in the stock market? Damn, I thought I was doing well. Where are you investing in stocks!?!? Are you completely in FAANG?

    1. I’m in Apple, Amazon, Netflix, Google and Facebook… basically the companies I’d never be able to get a job at b/c I’m too stupid! So the only way to benefit from their success is to invest as an outsider.

      The thing is, I have only a small percentage of my investments in these stocks as a percentage of total (9.41% of invested capital for 2017). I wish it was 100%.

      I just bought more Google after their quarterly miss. I thought they were able to use their monopolistic profits to destroy everyone…. and the government wasn’t going to do anything about it. But w/ the EU ruling… oops. Maybe more billion+ dollar fines are coming.

      1. So FAANG! Haha. Was that intentional? Don’t we all wish we could pick the winners and throw everything there! Yeah, I have a feeling with the current administration, some of these tech behemoths will face antitrust legislation. The Amazon/WholeFoods pending deal seems to have accelerated this.

        It’s interesting that this cycle of our long bull market is directing a lot of the stock market gains to the big tech stocks like in the Dotcom boom. The stock market gains seem to be disproportionately going to them while other companies flounder or decline.

        1. I realize a lot of people/companies are not happy with Amazon’s success and how they’re changing the retail landscape, but hard to say that they’re monopolizing supermarkets…1) there are a ton of supermarket chains and 2) they’re actually going to drive prices down to the BENEFIT of the consumer.

          The way government will eventually need to get involved with the tech disruption and displacement of workers will be a UBI funded by a robot tax. Otherwise all of the economic gains will be trapped with the capital owners. In the meantime, buy AMZN so you can be one of them!

          1. I like Amazon personally and have for a long time. They have created tremendous value for consumers. I don’t necessarily see that with most of the other Silicon Valley big tech companies.

            However, I do consider them a monopoly in retail which has definitely driven profits down in the sector and put many companies out of business. They themselves don’t make any money. Only small amount in Amazon Web Services. Definitely not a monopoly in supermarkets as they’ve just bought Whole Foods and haven’t done anything there yet.

            Not to say monopolies are always a bad thing. There are good arguments to be made that they provide value and die naturally through innovation.

            Amazon is certainly not the only monopoly.

            I’m gonna disagree with you on the UBI thing. If Bill Gates advocates UBI and a robot tax, he and Microsoft sure owe a lot of back taxes to the IRS for decades of software putting people out of work.

            I think the recent AI/Robotics trend does risk putting all of the economic gains in the hands of capital owners, something that has occurred dramatically since the Great Recession and something I think may only accelerate which I worry about. I definitely do not see UBI as the answer. I honestly don’t know what the answer is.

            Unfortunately, we’re getting dangerously close to a discussion concerning Politics, so I’m going to stop there. This is already a blog about Money. All we need now is talk of Religion.

  34. Mr. Smart Money

    I found it super helpful to get into the thinking process of someone who’s where I want to get to. :)

    Will have to read your blog post on the case for bonds now, because I never even considered allocating any $$$ to bonds.

    PS: Have you ever thought about putting a small portion of your $ to Bitcoin? Or are you completely against the idea of it?

    Thanks for the sweet write up!

  35. Mrs. Adventure Rich

    Thank you for sharing! I find that the transparent reports from various bloggers can really help as I learn more about the various investment options and strategies that are available.

    We invested in low cost index funds (weighted heavily towards stocks) though my company 401K (with Vanguard, currently maxing out) and in an HSA. While we know the markets are doing well and this bull will not last, we are not too worried. We do not plan to rely on our investments for quite some time, so a bear market, while not pleasant in many ways, would not be the end of the world (and may even provide some investment opportunity).

    1. Do you plan to try to get out before the bear market hits or are you going to let your retirement accounts ride?

      Kudos to you on the HSA account. Great tax free money!

      1. Mrs. Adventure Rich

        We plan to let our retirement accounts ride. I don’t trust ourselves to time the market or make the right judgment call, and since we do not need the money for sometime, our current strategy is to just ride it out.

          1. If you look into historical market situations, those who left their money in their investments, rode out the crash and continued to invest as if the investments were on sale, actually made it out better than those who pulled their money out. In fact, investing in a crash is how A TON of people have become rich since 2009.

            1. I agree with you on the best way to get rich is to invest in cheap assets once the crash hits. I have most of my money working for me so I want to be able to get out in time and then buy once we hit 2009 financial crisis prices again. But don’t we all!

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