Financial Samurai 3Q 2017 Investment Recap: Redeploying Capital

Financial Samurai Quarterly Investment Review

3Q 2017 was a complete blur. After selling my rental house in June, I was mentally exhausted and decided to do a whole lot of nothing except try and be a good father and continue writing on Financial Samurai. The feeling was kind of like wanting to just sleep in after taking a final exam.

Having a lot of cash all at once is actually kind of stressful. Because I don't want to lose out on gains in a bull market, I'm anxious to put money to work. At the same time, since the absolute figure is much larger than I'm used to, I'm afraid any rash investment decisions might lead to regrettable losses.

Out of the ~$1,800,000 in proceeds, I reinvested ~$935,000 as detailed in my post: Ideas For Reinvesting Proceeds After A Home Sale. Then I invested an additional $174,872 in new money.

This post may provide insights into helping wary investors redeploy a large windfall and setting up an investing system during a bull market.

My 3Q 2017 investment objectives were the following:

* Redeploy ~50% of house sale proceeds with an overall return objective of 10% a year

* Keep the remaining proceeds liquid in order to have enough ammunition to buy a cheaper house with ocean views if an opportunity arises

* Buy the dips in the stock market to bring exposure weighting up by 5%

* Read perma-bearish websites to have a well-rounded perspective since I've been relatively bullish for so long

* Reduce wage income for the rest of the year to reduce taxes given the home sale

(audio version of post with some added nuance)

3Q 2017 Investment Review

Financial Samurai 3Q 2017 Investment Recap

Total July Investment: $317,580

Stocks: $82,000

$29,000 in large cap tech names

$20,000 in son's 529 plan (a 18-year target date fund that's essentially 95% stocks, 5% bonds)

$33,000 in an S&P 500 index fund

Bonds: $235,000 in various California muni bonds with YTM of 3.7% – 3.85%

Mortgage Pay Down: $580

$580 Lake Tahoe vacation property (I automatically pay $580 more a month)

Comment: After paying off $815,000 in mortgage debt in June, I wasn't motivated to pay more debt down. Instead, I focused on building a California municipal bond portfolio for low risk and high certainty. I didn't expect to invest as much as I did in stocks, but there was a sell-off in the beginning of the month that tempted me to deploy capital. 

3Q2017 S&P 500 Performance
S&P 500 had a dip in early July and was very volatile in August

August Recap: $537,403

Stocks: $92,000

$42,000 in the S&P 500 index fund

$15,000 in my son's 529 plan

$35,000 in various large cap tech names

Bonds: $234,111 in various individual CA zero coupon muni bonds with YTMs of ~3.85%

Venture Debt: $72,712 in second venture debt fund

Mortgage Pay Down: $13,580

$12,000 to Squaw Vacation Property

$1,580 to Golden Gate Heights primary

Real Estate Crowdfunding: $125,000

The RealtyShares DME fund invested $600,000 in a preferred equity investment in Vernazza Apartments, a 168-unit garden-style apartment complex in Las Vegas, NV, only 3.5 miles from the Las Vegas Strip, 4.5 miles from McCarren International Airport and 8 miles from downtown Las Vegas.

3Q2017 10 Year Treasury Yield Performance
Bonds prices were rising until August, and then reversed course hence the higher yield

Comment: During 3Q 2017, there were multiple sell-offs in the stock market in August, which made me invest more heavily in stocks than I normally do. Although I'm not excited about stocks, I decided to hold my nose and focus on asset allocation since I'm ~5% below my target equities allocation of 25% of net worth. I focus on tech and the S&P 500 b/c my rental house was a derivative play on tech.

I slowed my municipal bond purchases because the 10-year bond yield edged down to about 2.15%, which made yields unattractive. If the 10-year bond yield gets back to 2.5%, I will be aggressively buying again.

My b-school classmate launched his second venture debt fund, so I decided to invest $200,000, of which $72,712 was called in August. The first fund has returned about 12.5% a year for the past three years, with one year left to go.  

I'm not fond of the multi-unit Las Vegas residential property by RealtyShares, despite the sponsor putting up $3.5M and this being a preferred equity deal. I'll be publishing a detailed post about this deal in an upcoming post.

Recall that I'm trying to diversify away from expensive coastal city properties and cities like Las Vegas, where prices are much more susceptible during a downturn. Instead, I'm much more interested in the heartland. At least there's no state income tax in Nevada, which will therefore suffer less if state income tax deductions go away under the Trump tax plan. 

September Recap: $254,889

Stocks: $46,000

$15,000 in an S&P 500 structured note with a 15% buffer and 100% upside participation

$31,000 in an S&P 500 index ETF

Bonds: $74,116

$74,116 in an individual CA muni bond yielding 3.25%

Mortgage Pay Down: $9,773

$7,773 to Lake Tahoe Vacation property

$2,000 to Golden Gate Heights primary residence

Real Estate Crowdfunding: $125,000

The RealtyShares DME Fund approved an investment up to $825,000 common equity investment in River Ranch Apartments, a 104-unit multifamily community located in Canyon Lake, TX. The property is centrally located between Austin and San Antonio (an equidistant 1-hour drive from the CBD’s of both cities) and just minutes from New Braunfels and Interstate 35, providing access to major employment hubs. The property was built over two phases in 2011 and 2017 and features Class A construction, with amenities including a swimming pool, fitness center, laundry facility, BBQ/picnic area and covered parking.

River Ranch Apartments at Canyon Lake, Texas RealtyShares deal

Comment: Nothing looked good in September. It was only in the last week of September that I invested some money in the stock and bond market due to small pullbacks. There's now excitement about Trump's tax cut plan, which boosts earnings for large corporations, its shareholders and small business owners. If tax cuts pass, public companies are trading at ~10% cheaper valuations than current forecasts. Further, my online media business's bottom line might increase by 5% – 10%. 

The 10-year bond yield climbed back to 2.37%, but still not high enough for me to get excited about putting significant money to work.

The RealtyShares domestic market equity fund bought another property in Texas, which is what I want them to continue doing. Now I've got exposure in Houston, San Antonio, and Dallas. The latest is a three year deal with a target 16.3% sounds good. But to be conservative, I'm modeling an 8% IRR instead. 

3Q2017 Investment Total: $1,109,872

Remaining cash balance: $1,090,000

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.

Concluding Thoughts On 3Q 2017

The reason why I continue to hoard so much cash is because I'm addicted to owning physical property, even though being a landlord pains me to no end. I was going to offer $1,500,000 for a fixer, but the agent said don't bother. It ended up selling for $1,700,000 after being listed for $1,300,000. I was going to offer $1,600,000 full ask for another house if they agreed to cancel their upcoming shows, but the agent declined and the house also sold for $1,700,000.

I keep going back and forth with whether I should just buy a $1,700,000 house that may be worth $2,000,000 three years from now. It's a lot of money, but it's $1,040,000 less in SF housing exposure than I had before I sold my rental. But every time I write up an electronic offer, I start to dread having to hire contractors and eventually find tenants. As a result, I'm motivated to try and earn an extra $100,000 a year in business income instead.

For the rest of the year, I plan to continue buying the S&P 500 any time it corrects by 1% or more up to $100,000 each time. If the 10-year yield gets to 2.5%, I will invest an additional $250,000 – $500,000 in bonds. Finally, I'm having dinner with three people in October from the RealtyShares investment committee and will ask them to explain their investment rationale in a couple existing projects and hear what they have to say about future investment plans.

If no corrections occur, I'll just continue to invest at least $10,000 a month in each asset class and hold the rest in cash just in case a sweet house pops up or a big correction comes along.

3Q 2017 Investment Results

Finally, I ran my investments through Personal Capital's Investment Checkup feature to see how I was doing and also analyze my current investment asset allocation compared to their recommendations based on my profile.

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. Because I reached my target retirement figure in 2012, it almost feels like any gains since is a bonus.

What my You Index doesn't capture are the returns from my physical real estate, real estate crowdfunding, and online business. The online business has fortunately been my best performing asset this year.

Financial Samurai Investment Performance

Here is a chart highlighting my current public investment allocation versus Personal Capital's recommended investment allocation based on my financial objectives. 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.

Readers, how did you invest in 3Q and what are you expecting for the remainder of the year? Will this bull market ever end? Disclaimer: Unless you are me, or your finances and risk tolerance are exactly like mine, don't invest like me. Graphic by

Related: 2020 Financial Samurai Year In Review

94 thoughts on “Financial Samurai 3Q 2017 Investment Recap: Redeploying Capital”

  1. I’m continuing to invest in my skill-set to double my wages. For the next few months, that is still the best route. Once that changes, I will be saving heavily for a condo and investing in the SP500. Simple, but good for life. I’m too young for a bond allocation. i’ll wait until my stocks grow way past 100K

  2. Also if you’ve got an interest in opening a side venture that is physical asset heavy, still got time to set up a pass through company and take a business loss, a SEC 179, or both to reduce taxes…considering if the capital gains you are sitting on are going be taxed on your personal income or another entity you have set up. That’s how I got my toys to start my manufacturing business, don’t have an exotic car addiction, got an expensive cnc machine addiction ROI calculated in hours the machines run. Way I see it the fed subsidizes business to spend. I saw it as every dollar spent was $.30 I got back that was left on the table to taxes. When my tax liability was $69k for the year it was time to buy some expensive toys for the business.

  3. Honolulu still got some of the lowest property taxes in the nation as along as it is your residence. Don’t fall into the mistake of not filling the papers and get your status changed from Hotel/resort status to owner occupied, looking to attack the investors that own but don’t live on she island or doing air bnb. Property taxes jumped from $2600 a year to over $10k when it got classified as “hotel/resort”.

  4. Nice update on your investments. Wonderful detail in the comments also.

    Like you, I sold an investment property this year. I was not interested in a 1031 exchange for another property, but did investigate various real estate funds that were eligible for exchange through a Delaware Statutory Trusts or DST. Unfortunately these funds had low, 6.5% returns. So, I’m taking a tax hit. Because I held the property for 24 years, the depreciation recapture is, kinda big. The long term capital gains tax is also a nice chunk.

    I have other properties, how are you handling the recapture and capital gains?

    Have ya considered private notes for rehabs and fix and flips? I’ve been doing pretty good with these in TX, TN and NC for 10 years now.


  5. RetiredAt53

    Nice update on your investments. Wonderful detail in the comments also.

    Like you, I sold an investment property this year. I was not interested in a 1031 exchange for another property, but did investigate various real estate funds that were eligible for exchange through a Delaware Statutory Trusts or DST. Unfortunately these funds had low, 6.5% returns. So, I’m taking a tax hit. Because I held the property for 24 years, the depreciation recapture is, kinda big. The long term capital gains tax is also a nice chunk.

    I have other properties, how are you handling the recapture and capital gains?

    Have ya considered private notes for rehabs and fix and flips? I’ve been doing pretty good with these in TX, TN and NC for 10 years now.


  6. Nice deployment! I understand the Realtyshares get’s exposure to the real-estate market in a more passive manner than renting out property. But how passive would you define this investment in terms of reading and staying up to date on the development of the apartment units you are invested in?

    1. Very passive. 10/10 passive. The only reason why I stay on top of the investments is because it’s a new investment for me and interesting to write about. I have more money to invest, so I’m evaluating performance etc.

  7. One day I will receive an inheritance and would like to invest that money into state muni bonds. I live in Kansas and not really sure what investment vehicle I should use. I currently have a roth IRA which I contribute the max and of course a 401k.

  8. A question for investors. I own 8 single family rental homes that net $6000/month. At what wealth point should the scenario change? For example, with his net worth, would Sam even buy a single family home for $80K that nets $800/month or is that too little for the effort? Right now, I intend to keep acquiring, but should I be doing more with that money as my net worth increases? Multi-family units to increase leverage? I have a great army pension and free healthcare so I don’t have to consider those costs. Is there a stopping point where enough is enough? I own some silver and gold, but have nothing in the markets. I knew I had the pension and leveraged my money to pay off the rentals. Each house adds 800 more per month and I don’t know anywhere else I can get those same results. Be honest if you have a great suggestion.

    1. You can diversify by reinvesting some of the cash flow from your rental homes each month into a low cost S&P 500 or total market index fund.

      This way, you don’t have to sell any of your properties and you’ll slowly build a position in the market over time.

      People are saying the markets are expensive right now but if interest rates stay low for the foreseeable future (10-15 years) there’s still a reasonable expected return.

      Good luck! Your blog looks great. Hope you keep at it and write a bit about your financial journey.

      1. Thank you for the compliment and advice. I have several financial posts partially written. I took Sam’s advice about starting a blog, and intend to mirror his 3 posts per week. It is more challenging than I thought. I am strongly considering an index fund, but it does seem high right now. Of course, people have been saying that for the past few years and are doing well. I suppose if you contribute monthly, it averages out over time. I like the idea of real estate crowd funding, but am hesitant to let go of the real thing. My cash flow is currently tied up until the end of December building a house for my father so I have time to make a decision.

    2. Army pension and free healthcare means you can afford to take more risks. The one thing I found was that I hit my limit of 3 rentals and no longer wanted to deal with more tenants and maintenance issues then. Do you have a property manager? If so, then that’s great if s/he is doing a great job for you.

      I just found an easier way to make money w/ no headaches: online income. Therefore, I decided to simplify.

      Where are you investing?


  9. Love these posts Sam. They are so unique and we all get a lot out of them.

    My Q3 investment recap was almost nothing: a whole lot of dividend reinvesting (it’s amazing how these can become meaningful if you just leave ETFs alone to grow over time), a small initial entry into SNAP and some selling down of BTC.

    The rest of it was cash generation :)

    1. Ah, I was so close to buying SNAP at $12.50, but didn’t pull the trigger after announcements. It still seems like a silly business fad. But who knows. BTC! Wish I went all in when we spoke!

      1. Well, SNAP just tanked 20% after their Q3 earnings report. You’ll have your chance to buy it tomorrow for $12.50 after all.

      2. Well, SNAP is back around $14 today.

        If you bought SNAP at around $12.50, that’s a 12% return in less than a month. Not bad!

          1. Nice! SNAP “snapped” back to $16 today.

            That’s a 30% return in less than two months if you bought SNAP at around $12.35 or $12.50.

      3. It’s been a wild ride, but SNAP knocked it out of the park with their latest earnings report. With SNAP trading at $19 today, that’s a 50% return in less than three months.

  10. I like owning physical properties too! But I really don’t enjoy being a landlord either. I had two vacation properties (a cottage and a condo in the Caribbean) but I found it really hard to manage from a distance. It is not always easy to find the right people on site to assist you when problems come up. I sold both last year, made a nice little profit on one of them and really happy they are gone. I still have three rentals in town and can’t help to check the real estate market every week. It’s an addiction!

    1. The Caribbean sounds lovely. But aren’t the islands susceptible to hurricanes? I’m not sure if I can own in that region. Feels too stressful. I’d rather just rent a villa there.

      1. Lol, yes but many areas are susceptible to natural disasters. In the 7 years I owned it , I never had an issue due to hurricanes. I made a real nice profit on it and since it was in Euros, I got an additional 14% in FX.

  11. Hi Sam! I looked through the comments and didn’t see much feedback on the recording of your post! Just wanted to say it’s great and I really liked hearing you talk out loud. I hope you keep doing that for future articles

    1. Thanks Liz! It’s good practice and I figure it adds a new dimension. Let’s see how long it lasts. Everything takes time, and I’m often tired after the little one goes to bed ~9pm – 9:30pm. It’s weird being perpetually tired.

  12. Hi Sam

    Can you please write a post on performing DD on venture debt funds for individual investors? I haven’t found many articles that address this.

  13. Sam I would look at dropping the structured notes and look into buying long dated call options on the S&P 500 instead (SPY options go out to 2020). Thats all they are really doing with the notes but giving more upside to themselves than you. This way you can get a large amount of equity exposure without having to put up all the cash. Sounds like you are aggressive but also want some flexibility. This can be a good choice

    1. It’s a good idea to save a little bit of money, but it’s just so much easier this way at the moment. I’m trying to optimize for time. And if you look at the $15,000 investment, it’s a tiny portion of what I’ve invested overall this year. It’s really all about asset allocation and saving time, time and more time. Any other red flags you see from my investments?

      How about you? How did you invest in the third quarter and how are you positioning for the future?

      1. I think the muni bonds are a good idea although I’m not real bullish on longer term CA munis (budget whoas will catch up). I like public REITs but you have the knowledge and cash to venture into the Realtyshares as you mentioned, so that will be interesting to see play out. I think you are a real smart dude, and your best investments will be outside the public markets!

        1. Everybody is smart in a bull market Mark!

          During the financial crisis, the CA munis held up. So if they can hold up to that time period, they are going to hold up to future downturns IMO. The default rates for AA bonds are tiny… like 0.01%.

  14. Seems like you’re more interested in capital preservation than growth at this point. Makes sense given your goals and net worth. Given that, why make it complicated with all the slicing and dicing? Wouldn’t a simple 1/N type portfolio (where N is the number of unique asset types) serve your purposes and cause less headaches? (for example something like vanguard total market + commodites (or even just gold) + cash + treasuries + real estate)

    1. Diversification and absolute performance. Do you member what happen during the 2000 downturn in the 2008 2009 downturn? You want to have assets zig when others zag.

      How did you invest your money in 2000 and 2008 and 2009? What was your asset allocation?

      Investing is not a headache for me by the way. I enjoy it. I spent my career in the investment industry.

  15. I think it’s great that you don’t seem to sweat underperforming the S&P too much. You’ve effectively built your own private absolute return fund and, as long as the target return is sufficient for your needs, who cares what the market does.

    Thanks for sharing on the Realty Shares DME as well. I’ve invested a bit with them to test the waters, but didn’t want to invest as much as the DME required.

    1. Yeah, when I was younger, I would always try and shoot for the moon and outperform the S&P 500 and other benchmarks. Now, my risk appetite is much lower with a larger financial nut.

      For example, let’s say you’ve got a $500K portfolio. Going for broke may be OK, depending on age, to try and get a $75,000 return (15%), and a potential $75,000 loss. But if you have a $10 million portfolio and are not working anymore with a family to support, it’s not necessary to try and earn a $1.5M return (15%) at the risk of maybe losing $1.5M, especially if you can happily live on much less. A 6% return on a $10 million portfolio is still a decent $600,000 return, especially if you can sleep well at night.

      What are your investments for 3Q and what do you expect to invest in the future? How is your performance YTD?

      I mentioned this in my article, but my largest asset, which is my online business, is performing much better than the S&P 500 index. It has been since 2009 inception, which is something I’m very excited about. But Personal Capital’s tracker doesn’t track this performance, and no problem. So don’t feel too bad for me. I’ll be OK!

      A lot of happiness comes from being satisfied with what you have and meeting your own objectives.

      1. My Q3 investments have been pretty vanilla: regular 401k contributions along with 529s for the kids. Already did full IRA contributions for the year. Anything extra each month gets swept to Betterment taxable. I’ve got a decent amount of dry powder in the form of an untapped HELOC, but just haven’t seen anything compelling enough valuation-wise to draw it down.

        My other big investment this quarter has been in myself and finally getting a blog going. I’m jealous of your eight-year head start, but you know what they say: the second best time to plant a tree is today. Thanks for being an inspiration to us newbies out there!

  16. Recovering Engineer

    Your public investments are likely doing better than you think. The “You Index” in Personal Capital is one of the few things I hate about the service because it is wrong and misleading. The “Index” doesn’t take into account your individual transactions or any investments you have sold. It simply takes the assets you currently hold in the amounts currently invested and then analyzes what that return would have been YTD. The only way the index return is actually correct is if you have a portfolio which you make no changes to for the entire year. It is painfully obvious how wrong this method is if you are a value investor and like to buy things that are out of favor. Buy a stock that is down 50% YTD because it is now a reasonable valuation and Personal Capital will now tell you that the YTD of the “You Index” is materially worse than it was before the purchase. That’s not how YTD returns work. Or if you sell an investment that has materially outperformed the market since it is no longer in your portfolio your You Index return will go down because it forgets that you made a profit. If you’re buying on dips in the market you’re definitely doing better than that 9.8% suggests.
    This is especially dumb considering they have access to your accounts, they know when you trade and at what prices. Calculating an actual YTD return on your portfolio should be trivial compared to all the other work they have done. To me if you can’t make the comparison correct then it is misleading to make it at all and should be removed. Unfortunately the company abandoned their customer service department and shut down their own forum because it was embarrassing to see that they hadn’t responded to a single user in over a year.

    1. Interesting point! I’ll ask them about this directly as I see them maybe once every six months. I just went into their office last week actually.

      But, I don’t want to make any excuses for my performance. It is what it is. And I’d rather be more conservative in my estimates so I end up with too much, than too Little.

      My biggest X factor is my online business. It is currently blowing all investments out of the water, and if there are a small business tax cuts, then even better. I will always be a proponent of encouraging people to start a business, especially a highly scalesbke online business That is so cheap to start.

  17. Whoops – forgot that part of my risky assets is a put writing strategy for passive income. 2% of my total. 3% is for ultra risky stocks or warrants or whatever.

  18. I do it differently. I have learned that having a return objective can make me chase investments I otherwise would not. I have a diversification objective across the major asset classes. I have requirements for my investments but at the same time I will invest in different types of stocks to ensure diversification. Some I am not even sure of but I want to make certain I am not in a bubble of my own making. I invest 50% in stocks, 70% of which are in 2 index funds. The remaining 30% are split between div stocks 15%, value stocks 10% and 5% go for broke. I am actually very light in the go for broke %. I have currently .05%. Need to work on that.

    I have 15% in real estate. Like Sam, I have used Realty Shares. I also use Fundrise (I have double in that platform as compared to RS) and Peer Street which I think is a fantastic way to invest.

    In normal circumstances, I would have 25% in bonds and the rest in cash. Instead, I have 35% in cash. I just can’t see value in these tiny yields with the risk of principal loss. Individual bonds are not a value to me because the rates I would be earning would be stuck at these very low rates. I have a stable value fund in an old 401(K) which gives me more than half my cash exposure at 2%. Right now the 401 is 50% stocks and 50% stable value.

    I have found that if I focus on diversification, the rest takes care of itself. I still have some work to do especially on including more ultra risky into the portfolio.

    Thanks Sam for a fantastic site. Probably the best personal finance site on the internet. Congrats on the baby!

    1. No problem and thanks! Everybody needs to do what works for them.

      Half the battle is just getting people to figure out a way to comfortably invest their cash. I know so many people who have a tremendous amount of cash and did not take advantage of this bull market or the last bowl market.

  19. Dr. Remoulak

    Sam, interesting read as always. Just thought I’d share one ‘lesson learned’ in case you and other readers find it helpful. Like you, I opened up 529 target funds at a very reputable brokerage firm when each of my kids were born and contribute to them regularly. I’m embarrassed to say that it took me 7 years to realize that the S&P index was trouncing the aforementioned target funds (and of course had much lower fees), so made the change about 4 years ago. As the kids get to withing 5 years of college age a few years from now, I’ll do a bit of re-balancing. Of course, no guarantee that this will always work, but given how infrequently managed funds outperform the S&P in a 10-year time period, I suspect it would be a fairly safe bet.

    1. Good tip. I can simply just buy an ETF and just add positions according to an asset allocation target.

      I just don’t want to think about too much anymore, I’m just have things on auto pilot once I decided this makes sense.

      I remember during work, my boss is it always say oh it’ll only take five minutes. But when you have an incessant amount of things to take five minutes, it soon becomes overwhelming.

      The fee is very tiny by the way, So I don’t mind.

  20. Thanks for sharing this, Sam. It’s always nice to understand your thought process with deploying cash. It’s a nice problem to have, though it can certainly be stressful figuring out where to reposition it!

    I recently got back some cash from my last realtyshare investments and decided to redeploy $30k of it into a private syndication. It’s a 190 unit apartment complex in San Antonio, TX with a ~16% IRR on a 5 year hold… we’ll see.

    Also, your audio addition is pretty cool!

    1. Good luck on the San Antonio investment! I figure why not create an audible version of each post and see if it makes a difference. One of my goals was to do a podcast this year, but time is so scarce nowadays.

  21. Side note. Not sure if you been keeping up with the Uber news, know that we have had many disagreements on their course. There seems to be a buyback offer for early employees (ones that have options) from Softbank. Thought you’d like to know to keep an eye out on that since one of your thesis is that early employees will liquidate and buy houses.

    1. Yes, there should be a huge liquidity event from Uber by 2019. I’ve kept up on all private investments in the Bay Area like Airbnb, Slack, etc. The SF property market is finally slowing down, but for how long, I’m not sure.

      What are you doing with your money?

      I forgot what our disagreements were on Uber. It’s a certainty they are going to go public and unleash billions of dollars in the Bay Area within the next 3 years.

      1. re Uber: it was on their course to IPO or Bust within the next few years, which I think still holds true. The entire job of the new CEO is to get them to IPO within that time period.

        My money. Barbell style approach with 30-40% in CDs, have about 1-2 years worth of emergency fund due to myself and aging parents, and using my retirement account to gamble / learn more about financial instruments like options (did my first option trades few months ago). 40% safe, 20% cash, 40% high risk.

        I’m still in the early-mid portion of my career, still at the point where concentrating getting better at my job will benefit me greatly, and deliver greater/more stable ROI than deploying savings. That’ll likely only last a few more years though since savings is doing well. I’m weary of real estate and market for years now (I know, lost out on major bull market). Was looking into REITs for old folks home due to aging population.

  22. Like this post. Not many sites have a good mix of financial subjects that ranges from basic savings to deploying 1M+. Interesting to hear how people on the latter’s wealth level invest and thought process behind it.

  23. Sam, where do you look for new CA Muni bonds offerings and how do you invest in them? I could only find secondary offerings (resale) on my broker’s platform.

    Thanks for advice,

    1. AJ and Sam,

      I run a Municipal Bond Desk in the Northeast and consider myself an expert in the field. I am more than happy to speak to both of you in regards to Munis whenever the time permits. 50% of our business is focused in CAL based Munis and i am sure there are items that you are not seeing from your brokers that would be a better fit for you both.

      Being an NJ resident my portfolio is made up of 80% CAL paper as we have a niche in that market and typically trade bonds that are esoteric in nature while offering the highest credit quality. AJ, drop a response to this with your email and we can chat.

      Sam, i know that we had a brief chat this summer before we got super busy on the desk. You should be reaching out to me as well.

      All the best


  24. Sam, you mention a sp 500 structured note. Can you elaborate? I want to get more bullish without much downside.

    1. Every month I get a list of structure notes from my wealth manager at Citi. The note simply offers a 15% downside buffer and has a 5 year holding period with 100% participation.

      So if in 5 years, the S&P 500 is down 15%, I end up flat. If the market is down 30%, I’m down 15%. If the market is up 30%, I’m up 30%. I give up dividends though.

      I’m just allocating exposure to equities with a hedge. I structured note in 2012 is what gave me the courage to invest $200,000 in the market after I left my job b/c of the downside protection. Otherwise, I would have probably just invested in a CD b/c I had no W2 income.

      Related: Examples Of Structured Notes

      1. Not bad. The dividend yield of the S&P 500 is currently 2%, so you’re only giving up about 10% to 15% in total returns for significant downside protection over five years.

        You could do something similar with a covered call strategy or by selling cash-secured puts, but a structured note can be more convenient than options trading.

  25. If you’re going to read perma-bearish websites, you should also put 5% to 10% of your money in gold. Ray Dalio (founder of Bridgewater) recommends that allocation and suggests it’s the one asset that should be a part of every portfolio right now.

    Are you open to redeploying some of your capital in gold as a hedge/diversifying asset?

  26. Thank you Sam! I am interested in anyone’s opinion on this one and if I made a mistake or the right call: I’ve been sitting on cash since May with the intent to buy more rental property so that I can use the depreciation to offset other rental income I don’t need today and in 15-20 years to have a solid stream of passive income. I live in a hot west coast market and 500 people a week are moving into my city. In September I entered into contract on an brand new apartment building that advertised a 5% cap rate (w/ management). Lenders asked me to put 30-35% down in order to make their debt coverage ratios of 1.2.

    Due to a massive spike in recent building, comparable properties in similar locations have begun offering concessions of 1/mo free rent in order to lease up. Co-star reports that rents in the immediate area are -2% YoY (likely due to these concessions). (Conversely, in 2013-2016 rents were growing at 8-10% a year).

    I lost sleep for 3 weeks fretting about this purchase and finally pulled out last weekend and here is why: said NOI/cap rate was predicated on a 5% vacancy of current market (non-concession) rents and I’m afraid rents are softening to the extent that when these units leases are up I will forced to offer concessions to release them (which = at least 2 months rent free for the unit as opposed to typically losing 1 month on a turn). This means one would have to presume a vacancy/concession of >5% which would cause me to be upside down cash flow wise for years.

    Did I do the right thing??

    P.S. The day I decided to pull out I happened to sit next to a guy on a flight who supplies wood & windows to apartment builders across the country. He told me if I want apartments it should be in the mid-west and I should steer clear of the west coast right now. He said the apartment investors he knows left the west coast market in 2016.

  27. Congrats on funding your childs future education needs. We have tried to fund as much as possible in the early years so we don’t need to worry about it later in life when we pursue early retirement.

    Your methodical process to redeploy is commendable. You could easily sit on your hands in this market. Making a plan and stretching the duration it is wise.

    1. Thanks. It’s an interesting Push / Pull feeling. B/c we are in a bull market, it DOESN’T feel comfortable sitting on too much cash. But b/c we’re in unchartered territory at all time highs, I have fear of losing money. Tough balance to deal w/, so everybody has to be true with their risk tolerance and financial objectives.

      One objective is to max out my son’s 529 plan within 18 years ($369,000 max at the moment).

      The other objective is to organically pay down all mortgage debt within 10 years.

  28. “The feeling was kind of like wanting to just sleep in after taking a final exam.”

    Yes! I still remember those feelings: relieved and happy! However, I think I’m 100% done with exams and school.

    I remember those days after my husband and I closed on our first home, we were so happy after stressing out about a lot of things in the process, including whether we were making the right investment. I remember we were in the elevator with our realtor on the closing day, and she could totally tell that we were somewhat hesitant. But we decided to go with it and have been happy with the purchase so far.

    Congrats on a successful month! It’s great to see your analysis. It gives me some suggestions about what we want to invest in the future. ^.^

  29. Sam,

    Thanks for sharing your investment recap. I am in a relatively similar position (albeit modestly less proceeds from a work related windfall) regarding the need to find a home for my excess cash. I have not been as diligent as you in terms of earmarking the proceeds as I am already predominantly exposed to the equity markets. I have also taken a hard look at RS DEM fund and share some of your concerns. Why have you continued to invest in the fund despite your reservations regarding specific deals that they have recently done? I read your earlier posts regarding your decision to invest in the fund, but is it just a way for you to maintain your targeted RE asset allocation levels or are you still constructive on the RS fund long term? I am apprehensive, but will still very well likely invest as it seems like a reasonable alternative to purchasing RE locally in the NYC area. I would be curious to hear your thoughts and additionally your feedback after you meet with members of their team. Thanks as always for all of your insightful posts!


    1. Hi JP,

      Good question. Regarding the RS DME fund, it’s accounting actually. I committed another $250,000 at the beginning of 3Q, and just amortized the amount over the quarter after each investment b/c I don’t know how the $250,000 will be spread out.

      I made the investment before the fund invested in the Las Vegas multi-unit property. If they hadn’t made that investment, I was certainly going to invest another $100,000 – $250,000 in the 4th quarter, but now I have hesitation.

      I’m having dinner w/ them this Thursday to explain their Las Vegas rationale in particular and try to lobby them to follow my BURL Rule and Heartland investment thesis.

      I DO appreciate investing in a fund where I’m a believer in the asset class and people, b/c it helps me deploy assets I wouldn’t otherwise deploy. But the LV investment makes me pause. I have a whole post on it coming up.

      I actually wish I was bullish on all their investments, bc that would give me confidence to invest a lot more in them ($500k) and not worry about that money. How cool would it be to earn $150K a year passively in the fund for five years? Alas, I need to do some more due diligence.


      1. Sam, I am always interested in your posts on Reality Shares. It sounds like you don’t expect to receive the full percentage that RS projected. Why do you keep investing if you don’t expect to receive the %. Can you give more information about the RS DME fund?

        1. I never expect to receive the stated return objective. In this case, their stated return is 15% a year for five years. Happiness is about managing expectations. With an 8% expected return, I hope to have a large enough buffer to not be disappointed with the results.

          I do believe an 8% return is achievable, and is welcome, which is why I continue to invest. I believe in the real estate investment class, which is my favorite.

          Here’s my write up of the RealtyShares DME Fund.

          1. Thanks for the quick response Sam. For someone like myself, who has not committed any cap to the DEM fund as of now, would you advise moving on and allocating the cash to other RE related investments in light of some of RS’s recent decisions? I realize that this is a difficult question as our needs are all unique and you will likely have more color after you meet with the team later this week. However, I would like some RE exposure and would really appreciate your insight/feedback for someone who has yet to make an investment in the DEM fund and only has about a month left to do so.

      2. chitown-2020

        Hi Sam,

        I’m curious why you choose to invest in the DME fund vs individual deals on the RealtyShares platform. I’ve been selecting the individual properties for some time and have been reasonably happy with the results so far. I would love to ‘trust’ them to put the right things in the fund, but always worry that I’ll end up with things that I don’t want for reasons that aren’t necessarily aligned to my own thesis. What I always loved about crowdfunding was that it is an alternative to a REIT where you have no idea what’s in it.

        The only serious pain with what I’m doing is the constant admin (and delays) of deals beginning and ending — but I feel like that’s a small price to pay for control of exactly where my money ends up (such that I can do sufficient due diligence to make meaningful choices).

        Any thoughts or advice on this? Especially curious if you see a downside to choosing the individual deals…

        1. Time. I want to spend as much time being a dad to my baby as possible. Only got one shot at being a good father, and I don’t want to blow it. Having only one K1 to deal with and having a committee pick the best deals on their platform is worth the 0.85% fee for me. If I didn’t invest in the fund and other private deals, I would have way more cash over the past 8 year bull run than I needed, which would ultimately drag down my portfolio.

          How about you? What did you invest in this year and how is your investment allocation looking? Forecasts for the future? Are you a parent?

          Related: Man Up Dads! Time To Be A Better Father

          1. chitown-2020

            Ah time… it is something in short supply… I get it… and I’m not a parent, so I can only imagine. I do have a globetrotting day job that keeps me occupied.

            For me, I don’t really need cash now, but its something that I demand from every crowdfunded deal. My thesis is that deals that are already cash flowing are a bit safer than rosy proformas that assume a future selling price. I only ‘count on’ the cash on cash return and then any appreciation when the property sells is ‘gravy’ to cover the overall risk… similar to you, I assume between 8-10%, even though most of the projected IRR’s are around 14-16+%. Gotta account for risk — and I want something back along the way (even though I don’t need it now). I’ve gotten burned in the past on deals that delayed all gratification for too long.

            My screen for new deals looks something like this:

            – Equity or Preferred Equity (given the choice I like tax advantages vs debt deals where the payments get treated as ordinary income)
            – 8-10% Cash on Cash regardless of overall IRR (minimum 6% if its something really interesting)
            – I love your heartland thesis, so I’ve been adopting this mostly from a location standpoint
            – I’ll invest in lower end residential, but not if I get any hint that the sponsor doesn’t invest in the property or take care of tenants — I believe in creating value for tenants, not slum lordship greediness
            – I like to maintain a few hotels and commercial properties, but not too many at once (highly dependent on the economy and not very recession proof)
            – In general I hate construction deals (because we all know how they end — late and over budget), but I’ve been tempted by a few anyway (face palm)

            Unfortunately crowdfunded real estate (at least that I’ve been involved in) hasn’t been tested by a real financial crisis or recession (thinking 2008/2009)… so really curious to see what happens to these in a downturn. My expectation is that the cash on cash dries up and a few sponsors go under, while everybody tries to hold on. So I do see some risk in it.

            So far my favorite deal was on another platform (RealtyMogul) for a Medical Office Building. Great sponsor — created huge value and blowing away the pro-forma. (I have some not so great deals that I’ve learned from, for full disclosure). So far over the past three years, my return has been right around 10% in actual realized returns, including all of the ‘churn’ of deals starting, ending and re-investing.

            Also, I have a great tax accountant — worth the investment. May he forever be blessed. :o)

            1. I think with a well diversified portfolio, you should be able to survive another 2008 Armageddon. I purposely deleveraged by paying off debt and selling my rental home after this incredible run to hedge against a downturn. I’m still long, just not as long San Francisco real estate anymore.

              I’ve been spending up more over the past couple years and really trying to enjoy the fruits of my labor and investments.

              When I was younger, I aggressively invested in growth. Now, it’s much more balanced.

              Good luck with your investments! We’re all geniuses in a bull markets :)

  30. Really love these “redeployment project” updates. It’s always a challenge choosing from the vast array of investment options when you have a bit of cash sitting on the table in front of you looking up at you screaming “don’t just stand there, DO something with me!!!” :)

    But Sam – I swear to – if you try to buy another rental property I will personally get on a plane down to SF, and swat the offer signing pen out of your hand. That’s a terrible way to spend your energy to earn a return (relative to your other options), and you know it… Go for a walk, read a book about something new and interesting, take a nap. These are all activities that will offer a more pleasant ROI for you right now than owning a rental property…

    On that “something new” note – curious if you’ve given any further consideration to adding cryptocurrencies into your portfolio? Even as a pure wildcard bet / experimentation play? Diversification with an asset class that isn’t tightly correlated to the rest of your bets might not be a bad idea, and while the gains seen in this space in 2016/17 have been surreal (and volatile) they are still gains…

    1. Too funny Brian! And I appreciate it. It’s hard to quit real estate as an addict. BUT, since I can’t pay a price that I feel to be a bargain nowadays, I’m “protected” from buying another place. It’s during a downturn I will wonder whether I can hold off on not buying property.

      I haven’t jumped into the cryptocurrency game. Shoulda done so years ago, but oh well!

      I will probably carve out about $50,000 – $100,000 where I’ll just go after highly speculative investments again. May right a post about this new strategy in the future. It’s what I should have done every year since 1999, and not just in 1999-2000.

      How about you? What are you investing in?

      1. My current “mad money” allocation (for longshot / speculative / experimental investments) is 100% in cryptocurrencies. Of that, it’s 90% Bitcoin, 5% Monero, 3% Dash, and 2% in some oddball ICO tokens.

        I dabbled in the cryptocurrency space in 2011 by messing around with mining bitcoin, but back then I was more interested in it from a technological perspective vs. as an actual investment asset class. I had all my other investment $ in traditional assets, with some angel investing making up my “speculative” category. I just enjoyed geeking out with bitcoin as a side project because I was fascinated in the underlying blockchain + applied cryptography aspects of it. I took my eye off this space completely when I joined a startup in 2012 and had no free time for side projects anymore. I forgot all about Bitcoin until I started looking into it again in late 2016 while looking for possible ways to recover financially after a divorce.

        Fast forward to today? Whooboy… Bitcoin has exploded in both price and in mindshare.

        My only “problem” now is that my mad money allocation has increased in value so much that it’s a much, much larger percentage of my overall portfolio than I had ever expected it to become. I need to decide how much to “let it ride” vs. “take profits off the table and redeploy them elsewhere”. Every now and then, a speculative play works out. What you do with that windfall is a different challenge…

        But I don’t think the cryptocurrency play is over yet, it’s just beginning. I think that in the coming months / years, you’re going to start seeing a lot more interest in people wanting to at least dabble in cryptocurrencies as an investment asset class. It’s slowly but surely moving from “niche” to “mainstream”. When / as that happens, and ne money flows in? The price will likely continue to increase.

        Fascinating times for bitcoin specifically, and for cryptocurrencies in general.

          1. In some ways land is the only investment. even the bank shares I own are simply real estate plays because 90 percent of loans are mortgages anyway. so easy to expand when you have lotsa land cause banks love to lend against it. quality land is a no brainer. I am currently buying a store in Shibuya and the upside options of this play are simply just fun to day dream about…


        1. Thanks for sharing your experience with crypto investments, Brian.

          What do you think of Bitwise Investments or MetaStable Capital? They’re basically long-term passive or semi-active crypto funds investing in the top coins and cryptocurrencies. They mostly hold bitcoin and ether, but I think they could be much easier way for most investors to get a 1-2% exposure in cryptocurrencies.

          1. Both Bitwise and MetaStable are solid (and early) hedge fund options that are trying to fill a gap in this space. MetaStable has a $1M minimum buy-in though, while BitWise is more accessible with a $10k minimum. Both require you to be an accredited investor, also. So depending on your definition of “most investors” these may or may not be good options for you.

            If the buy-in limits or accreditation req’s are showstoppers though, just open an account at Coinbase (easiest to use) or Gemini (lower fees) and get in that way. Or if you want to do it oldschool and buy them from an individual.

            Ultimately, we’re still in the early days re: cryptocurrencies as an asset class. Right now it’s still niche and nerdy, and kinda tough to access for “normals”. But that’s changing, and fast. I bet that within the next 6-18 months you’ll be able to buy cryptocurrencies – either directly or as part of a ETF-like instrument – via your existing brokerage accounts. Just like any other traditional stock purchase.

            When the majors like Fidelity, Schwab, JPMC, etc. offer it on their websites to their retail customers? Whooboy, stand back and watch the rush of money into cryptocurrencies. It’ll be exciting.

          2. Also, here’s a good article about Bitwise – and the author (Laura Shin) is my favorite “mainstream financial media” writer in the cryptocurrency space. She does a great job of bridging the gap between deep tech and traditional investment concepts. Definitely worth reading her other stuff if you want to start ramping your knowledge here.


            Sam – I’m thinking you and I could maybe collaborate on a guest post here for your readers re: investing in cryptocurrencies? I’m (clearly) biased in favor of them, but I’d be happy to lend a hand trying to help explain what they are, and what they aren’t – in plain language that regular investors can easily understand…

            What do you think? What kinds of questions do the rest of the Samurai community have here?

  31. I have to admit that as I’ve gotten older that I’ve tried to simplify my investments to the point that it’s basically the Vanguard Total Stock Market Fund and the Vanguard Total Bond Market. It got to the point where I was driving myself crazy trying to optimize my money all the time. It’s definitely not right for everyone but for it’s been a great reliever and now I sleep much better :)

  32. Very detailed analysis of your deployment of new capital, thanks for sharing! It’s very objective and I like that you have automatic targets to hit until the end of the year. Your YTD is great, almost 10% and the year’s not over yet. I am at around 8.5% YTD myself. It’s interesting that Trump plans to cut taxes for corporations and Trudeau here in Canada plans to increase taxes to businesses and incorporations. Also interesting to see differences between the 529 plan and the RESP, which sound like similar investing vehicles for post secondary education. We just contributed $16500 into the RESP and are waiting for our $500 grant this year to be deposited. I should look up what the 529 offers in incentives to save :)

    1. Retired at 56

      I don’t trust the allocations developed by Personal Capital. Let’s talk alternatives. Private equity is regular equity levered with debt. Hedge funds, the 2-and-20 model is WAY too expensive given the long-term performance. I think of hedge funds as a wealth transfer tool from the investors to the managers. So, no alternatives for me. Real estate investing – too many maintenance headaches. I’ll stick with low cost mutual funds and ETFs. And my allocation is 20% international equity, 35% domestic equity, 45% fixed income (a quarter of which is foreign fixed income). Retired at 56, now 60 and loving it.

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