Financial Samurai Mid-Year 2018 Investment Review And Outlook

Financial Samurai 1H2018 Investment Review And Outlook

Here's the Financial Samurai mid-year 2018 review.

After the 10% 1Q correction, I did a lot of reflecting and decided that I had too much risk exposure. As a result, I decided to move from roughly a 70/30 stock/bond weighting down to a 55/45 stock/bond weighting by selling stocks when the market clawed back to even and buying a slug of bonds after the 10-year yield breached 3%.

Overall, my public investment portfolio is up 4.7% vs. +1.5% for the S&P 500. My portfolio was largely helped by positions in Netflix, Amazon, Google, Omega Healthcare, and hurt by a couple individual California municipal bonds bought in 2017. The muni bonds will eventually pay par value, but in the meantime, they are underperforming.

Financial Samurai Mid-Year 2018 Review

Bonds (45% of portfolio) Mid-Year 2018

I wrote in my 2018 outlook post that I thought 3% would be the cap on the 10-year yield in 2018, despite an estimated four additional Fed Funds rate hikes for the year. Therefore, when the 10-year yield broke 3% on 5/15/2018, I backed up the truck and bought a couple bond ETFs between 5/15/2018 – 5/17/2018.

Financial Samurai Mid-Year 2018 Investment Review And Outlook

Here's a snapshot of about $360,000 worth of bond ETF purchases in one after-tax investment account. The right column is the cash balance. I bought more California muni bonds in my other after-tax account. The right column is the cash balance in one account after selling stock when the S&P 500 rebounded.

Buying Bonds In 2018 - Financial Samurai Mid-Year 2018 Investment Review And Outlook

I believe we've seen the top for the 10-year bond yield this year. By the time the Fed raises rates two more times, the yield curve will be flat-to-inverted, portending to a recession. As the fear of a recession grows, there should be a steady demand for treasury bonds, which will keep a lid on yields.

With the overall portfolio up 4.7% for the year, I'm tempted to go 100% treasury bonds if the 10-year yield gets back up to 3.1% to lock in a conceivable 6% – 7% total return for the year. What I'm also considering doing is opening up a 12-month CIT Bank CD that's paying a market-leading 2.5%. I'll earn 1.25% for the next 6 months and lock in a 6% return.

Stocks (55% of portfolio) Mid-Year 2018

The only portfolio I'm trying to get right is my “house sale proceeds” portfolio. Making money with the house had been so easy since 2012, that I didn't want to mess up the proceeds. I've more or less left my other portfolios alone because I'm comfortable with their respective asset allocations.

According to my weekly performance e-mail I get from Personal Capital, my You Index™ for July 1, 2018 says I'm up 5.89% YTD. The You Index™ is the performance of all of your current stock, cash, ETF, and mutual fund holdings. It does not include your individual bonds, options, or other alternatives, hence why it's higher than my +4.7% overall performance.

Personal Capital YouIndex - Financial Samurai Mid-Year 2018 Investment Review And Outlook

Originally, I thought I'd be OK investing most of my house sale proceeds in risk assets because I had already de-risked by $815,000 by paying off the mortgage, but I was wrong about the stock portion. Losing $50,000 at one point in February in stocks made me uncomfortable.

After selling some core S&P 500 holdings in the first half of March when the S&P 500 recovered 65% of its loss, I began repurchasing stock in early April and the end of June to get my stock portfolio weighting up to ~55%. The second half of June was weak in the stock market, so I decided to rebuild my position.

S&P 500 First Half 2018 Performance

Here's a snapshot of buying roughly $100,000 worth of core index ETFs during the June sell-off, including $15,404.95 of Netflix after its 6% sell-off. My general policy for over a decade has been to purchase between 10% – 20% of my investable assets in single stock names. I'll write more about this strategy in the future because it has made all the difference.

Buying stock in 2018

Currently, I've got roughly $55,000 cash left to deploy in my “house proceeds portfolio” before having to transfer new cash from my savings account if so desired. There are a lot of moving parts to my investments to keep track of, which is why I've been toying with hiring a financial advisor to manage everything. But by continuing to outperform so far, I'm probably just going to suck it up and continue managing everything myself.

My #1 goal is to not sell anything in my house proceeds portfolio for the remainder of the year, and only contribute when there is further weakness in either the stock or bond market. I think I've finally constructed a portfolio that matches my risk tolerance, but we shall see how the portfolio holds up when volatility strikes again.

Real Estate Crowdfunding Mid-Year 2018 Review

I'm a fan of real estate crowdfunding to earn income passive and diversify my real estate holdings.

I had dinner with RealtyShares on June 27, 2018 to get an update about their latest operations. At the dinner were the Senior Director of Capital Markets, Director of Asset Management, and VP of Investor Sales and Client Success.

I was pleased to learn that RealtyShares has set up more Investment Committees to vet each deal before hitting their platform. In the past, there was just one large Investment Committee that looked at all deals to let 5% of them onto the platform. Now each deal must be approved by multiple Investment Committees. Further, management has aligned Investment Committee compensation with the performance of each deal they approve. Hence, if a deal performs poorly, Investment Committee members who voted for the deal will get dinged.

With more eyeballs looking at each deal, the end result should be better deals for investors. Of course there are no return guarantees, but as an investor, it is reassuring to know that even before I do any due diligence on a project I like, RealtyShares has already done more due diligence than ever before.

The equity fund I'm in closed two more deals in 1H for a total of 17 deals. One of the deals was an office building in Minneapolis, Minnesota with a 5-year target hold and a target 15.3% IRR.

RealtyShares Minnesota Office Building Deal

The other deal was a student housing complex in Toledo, Ohio with a 24-month target hold and an 18.4% target IRR. Both deals look fine to me because I'm looking for any real estate exposure outside of the San Francisco Bay Area where I still own two properties and one property in Lake Tahoe.

RealtyShares Toldeo Multi-Unit Housing Deal

In the beginning of June, I received a surprise $5,855 dividend payment. It's nice to have, but I've reached my limit for the amount of capital gains and ordinary income I want to receive in 2018. As an S-Corp owner, you have some flexibility in how much you can pay yourself between salary and distributions to manage your tax liability.

Based on my dinner conversation with the folks at RealtyShares, the fund is on pace to reach its target IRR of 15% over five years, but I'm not holding my breath. If I can get an 8% IRR, I'll be ecstatic. For those of you looking to invest in a fund as well, you might get a chance in 2H2018. I'll be sure to keep you updated.

RealtyShares Dashboard Returns
Surprise $5,855 dividend payment in June given all deals are equity

Unfortuately, as of Nov 7, 2018, RealtyShares is no longer accepting new investors. Take a look at Fundrise instead as a great alternative. They are open for all non-accredited investors.

Other Investments Mid-Year 2018

Venture Debt – I had a capital call for $30,000 from my second venture debt fund investment during mid-year 2018. The fund has investments in an online beauty company, three hardware device companies, a semiconductor company, and a couple software companies. I have zero insight into these companies, and they all seem pretty random to me, but I trust the fund managers know what they are doing. One of the co-founders is a Berkeley business school classmate I've known since 2003.

Financial Samurai – I had two inquiries about selling Financial Samurai mid-year 2018. One inquiry was from an individual who had no idea what he was talking about. But the second inquiry was from a boutique investment bank representing a publicly listed company out of Europe.

It's nice to feel wanted, but I don't plan to entertain offers until after July 2019 because I promised myself I'd own and operate Financial Samurai for 10 years. In a low-interest rate environment, you want to be buying strong cash flow assets, not selling. Further, this site is fun and easy to operate. I'd love to use it as a business and communications teaching platform for my son.

See: How To Start Your Own Website Today

Physical Real Estate – I've been eyeing some beach homes on Oahu and they are all coming down in price. The weakness sets up nicely for when we plan to move to Honolulu before my son starts kindergarten in 2022-2023. I'm also noticing some random opportunities in SF as well. For example, the house I put a low ball offer for in May is still on the market. Summer is one of the best seasons to hunt for relative bargains.

Financial Samurai beach home Hawaii
Tennis in the morning, beach with the family in the afternoon, blogging in the evening sounds good.

Overall Net Worth +6.7%

Despite strong corporate earnings growth, it feels like we're going to be stuck in a +/- 5% range for the S&P 500 and a 2.75% – 3.11% range for the 10-year bond yield. If the Fed really does raise the Fed Funds rate two more times by the end of the year, I'd be looking to buy more defensive assets to prepare for weakness ahead.

I like my relatively defensive 55/45 portfolio + real estate crowdfunding exposure away from expensive coastal cities. The inland empire has more room to run, but even it will eventually face headwinds, hence my 8% return expectation versus 15% target. I've also still got about 10% of my liquid net worth in cash.

If someone gave me a chance to lock in a 8% overall public investment return for the year, I'd take it. For a blue sky scenario, we could see bonds stay flat with the S&P 500 rallying by 10% by year-end, but I doubt it. There are just so many headwinds.

Financial Samurai 1H2018 net worth growth
1H2018 net worth growth, the kinks are due to trade delay recognitions

Overall, my net worth has grown by 6.7% YTD according to my Personal Capital dashboard. This is because savings tacked on about 2%. I've left my private investments and real estate values the same, which could provide some upside surprise.


Remember to always establish some goals for your investments. If you do, you'll be much more focused on getting your investments right.

My main goal for my house proceeds portfolio is to have enough money to buy a beach home in Hawaii. If I can grow the portfolio by 5% a year for the next 3-4 years while the Hawaiian housing market continues to soften, dreams will come true.

Related: 2019 Mid-Year Investment Review

Financial Samurai Mid-Year 2018 Investment Review And Outlook is a Financial Samurai original. Check out the Top Financial Products page to help you achieve financial freedom.

72 thoughts on “Financial Samurai Mid-Year 2018 Investment Review And Outlook”

  1. It looks like the Minneapolis office building investment is going to zero thanks to COVID. I was in this one too, sucks

  2. Ok, just to confirm does that mean you have abandoned going through with the 100% treasury bond ETF strategy?

    “With the overall portfolio up 4.7% for the year, I’m tempted to go 100% treasury bonds if the 10-year yield gets back up to 3.1% to lock in a conceivable 6% – 7% total return for the year.”

    1. I was tempted, but I didn’t go farther than 55% of my portfolio in bonds. My portfolio is now up about 9% for the year.

      So now I’m really tempted to buy more bonds. And I will. All right third quarter or year and wrap review.

  3. Sam,

    Thanks so much for sharing your knowledge around PF. Looking at your comments around your bond strategy. I noticed the 10-year yield is above 3% again. I am struggling to understand the correlation between the 10-year note and the IEF bond fund you purchased – is this an inverse relationship?

    Also, are you going to deploy the strategy you mentioned and go 100% treasury bonds since its above 3.1%?? Does that mean you go all in on a bond fund like IEF?

    “I wrote in my 2018 outlook post that I thought 3% would be the cap on the 10-year yield in 2018, despite an estimated four additional Fed Funds rate hikes for the year. Therefore, when the 10-year yield broke 3% on 5/15/2018, I backed up the truck and bought a couple bond ETFs between 5/15/2018 – 5/17/2018.

    With the overall portfolio up 4.7% for the year, I’m tempted to go 100% treasury bonds if the 10-year yield gets back up to 3.1% to lock in a conceivable 6% – 7% total return for the year.”

    1. It is inverse unfortunately. Which means a bond fund like IEF has gone down. The 10-year bond yield recently started to spike, and is now at 3.19 as of 10/4/2018. I thought it would be capped around 3% – 3.1% by end of year. Let’s see what happens.

      I am buying bonds today, mostly muni bonds to build my steady and secure passive income.

  4. The return rates for bond funds seem terrible to me, but reading the article it seems that you are weighting yourself for an impending market downturn. I’m guessing you are going to sell those bonds fund as soon as the market bottoms out? Just keeping the funds at 3% would keep you about even with inflation. If my assumptions are correct, can I do the same thing with my 401k?

  5. Of course, per my namesake, I don’t work and live off my SF RE income. Brought several properties mid 2000s and more again in mid 2010s. The mid 2000 properties more than tripled in value and the others close to doubling in value. So yes the appreciation is immense, given leverage and I also added significant value to the buildings.

    The reason your home wasn’t exciting at $9000 is because it’s not an efficient rental for the value and equity you had tied up in it. Which is why I suggested the 1031 into a 2-4. You had the equity, so certainly you’d get better cash flow.

    But playing the SF RE game is pretty intense, sometimes a blood sport, given dealing with complex and sometimes arbitrary city bldg/planning depts for entitlements, and knowing how to deal with (potentially) entitled tenants. So in that sense it’s not a casual affair, and you really need to know how to work around all the inefficiencies and market distortions that are thrown your way. OTOH that’s the way to make the big bucks here :)

    1. What price point and location did you buy your properties in the mid-2000s? I bought in Pac Heights in 2003 and the Marina in 2005 and only saw about a 120% gain and 80% gain so far, so a tripling is huge outperformance. Perhaps absolute prices different?

      If only people knew about online real estate income. It’s just so much harder and easier to earn and manage.


      1. The reason my properties increased in equity so much is because I added significant value to them- added unit, condo converted, expanded, legalized units. (Your equity increases sound about right if you didn’t add value to your homes.) These acts add hundreds of thousands per project. And it doesn’t take a lot of time- more brains, hiring skills, and people/project management- as I hire out for everything. I now have several mil in equity, and strong cash flow from boutique units which I only rent out to professional tenants. So it’s very part time. Matter of fact I’m not looking to add more RE, as I have enough assets. I’m looking more to preserve assets and mitigate risk.

        My plan is to keep my SF properties long term. I have low fixed rates, strong cashflow, renovated properties which areless hassles and easy to manage, very low tax base. I anticipate that prime properties in SF will double again, at least, in the next 10-15 years. Tech is still a huge driver here and is only growing in its global reach and influence. And if we have any future inflation, which I do think is very possible, once the dust settles real estate will multiply in value as inflation impacts incomes, rents, basic commodities, etc. When we’re paying $50 bucks for a burrito I know my properties will be multiple millions each. My loan amounts, fixed rate mortgage payments, and prop 13 protected tax bills will be a joke in comparison:)

  6. 1- keeping relatively expensive homes as rentals isn’t that efficient. Smaller apartment buildings would make more sense.

    2- you won’t get nearly the same appreciation with those types of paper investments. Chiefly, they are not leveraged returns. And also you have no control over what they choose for their funds, plus you’re paying their overhead, fees, etc. Managing a few units very close to you is pretty easy. Plus you can always delegate that later on. I think selling the home and deferring all gains via 1031 into a more practical rental prop locally would have been the best move.

    1. Sounds good. How many homes in SF do you have and when did you buy them? Have you left work behind as well due to the immense appreciation?

      With my SF rental, even though it brought in $9,000 at one point during the peak, after the taxes and expenses, it wasn’t enough to make a difference for the time it took.

      Online real estate is so much more efficient and scaleable. I used to think physical real estate was my favorite asset, but not anymore.

  7. I’m not negative on San Francisco real estate. After all, I do own two properties here and one in a tahoe. I am negative on paying $24,000 a year in property taxes and spending my precious time managing a rental property that does very little for my net worth at this point.

    I’d much rather own property possibly, which is why I use the proceeds to invest in stocks, bonds, and real estate crowdfunding.

  8. Sam that may be a right decision on your part. Although I don’t do bonds, this long bull market run is somehow making me a little nervous. I’m still 100% stocks with about 70% individual and 30% ETF and even though I believed that stocks will still end in the positive for 2018, it may not be a bad idea at all to start going 55/45 individual/ETF. For my own peace of mind perhaps.

  9. I believe that for most investors trying to time the securities markets using index funds is a waste of time– especially in time horizons of months or a few years. With individual stocks the parameters are a little different since different people will have different degrees of insight into different stocks. Of course, you don’t quite know who is making the opposite bet on the other side of the trade.

    Hope of timing (and thus beating) the market with index funds, for most people, exacerbates FOMO with often suboptimal results (i.e. lag market).

    With longer term trendline projections I think people can generally have a little more insight. For example, if Bernie Sanders starts polling high and a majority of wide eyed millennials start seeing a bright future of high growth for America, then its easier to have the confidence to place a longer term bet against that.

    I don’t time the securities markets short term so I could not tell you how up or down I am for the year. As I said, I think it’s a waste of time and I thus think that my time is better spent on other endeavors which statistically are more likely to guarantee me a successful FI.

    On Bay Area real estate I can tell you that enviro-nimbys continue to restrict supply and thus inflate my housing prices and equities, and with some significant delay also inflate the rents I charge them. The enviro-nimbys basically sleep in the bed they make. The bigger question is whether the enviro-nimbys have pushed the envelope too far into distortion and we are thus now due for a correction in Bay Area real estate prices. That will in no case lead to cheap housing or rents for Bay Area enviro-nimbys but may take down a few late Bay Area housing entrants. For me the enviro-nimby rents aline already cover about sixty percent of my family’s expenses, and rents have a lot more short term inertia compared to volatile over-leveraged housing prices in enviro-nimby coastal cities.

    PS. I think that if you want to time the securities markets you should rename your site Financial Enquirer :)

    1. Indeed. I’ve truly been lucky for the past 20 years actively investing and timing the market. I’m pretty sure my luck will run out at some point, hence why I’ve timed my de-risking after being up 4.7% for the first half.

      It’s important to never confuse brains with a bull market. And it’s also important that everybody invest the way they feel is appropriate for their own risk tolerance and goals.

      How are you doing so far this year and how have you structured your portfolio? I’m hoping more commenters will share their wisdom as well. Thx

      1. My equities are up 6.8% YTD but I have done nothing to achieve it. Must be the mix of equities I happen to have. My allocation is not an exact science and I let it vary quite a bit. All those models about ideal allocations by age, efficient frontiers and tangent portfolios assume the market is a random statistical entity that behaves like it has historically behaved. It is thus an inexact science. So what’s the point of being paranoid about your allocation diverging from your target by, say, ten percent when the whole science and model are inexact? Go fishing, let it be and there are almost as many chances you’ll outperform the theory as there are you will underperform, so long as the allocations don’t get completely out of whack.

        My Bay Area housing is up about 20% YTD per Zillow. Rent Cash flow is dismal, at around 1%, on Bay Area houses that are paid off — after real estate taxes, insurance and amortized long term repair costs. I’m rolling out a roughly 5% rent increase throughout 2018 as leases renew. My outside of the Bay Area rentals have a 4-7% cash flow but much lower appreciations of around 2-4% YTD. In the Bay Area I’m not in a mood for leverage in housing. The prospect of Detroit-zation in what is now one of the most business unfriendly states (California) with worsening outlook, would keep me up at night.

        In the Bay Area, with purchase prices at x35-x50 multiples of annual rent my medium term outlook is that either rents go up significantly (like double) or Bay Area housing crashes mid term. E.g. In Palo Alto CA, with price to rent ratio of about x45, a rental house has raw return 1/45=2.2%. Teal estate taxes eat up 1.35% of that and insurance as well as long term amortized costs (roofs, fences, carpets, appliances, furnaces and the once in a generation remodel) bring total cash flow return down to around 0.5%. So all your return is essentially in appreciation which must break 2.5% just to cover inflation. Then the remainder of the appreciation (if any) can start being compared with alternative investments. As I said YTD appreciation on Bay Area housing in 2018 has been a phenomenal 20% — but that cannot last forever. The only thing that the rest of the US cannot replicate when it comes to California is weather. But that is a finite benefit that is dependent on finite climatic constants. Everything else that has to do with human momentum can be replicated elsewhere — and somewhere it will — perhaps in a more business friendly state. There is a limit to how much a person from Ohio is willing to pay to move to California. I have a hunch that as soon as tech softens a bit towards the end of the cycle heads will roll and some people will find themselves without Bay Area jobs and under water in housing. And with rents so low nobody in their right mind will buy a Bay Area house without the prospect of appreciation. The issue is how far will this unwind and for how long, and what will happen in the longer term. But my general assessment is centered around one basic principle: California’s un-duplicable advantage is weather and that is finite. Thus, Bay Area housing cannot keep commanding ever higher housing price multiples compared to the rest of the country. I think that this is what the Bay Area lemmings fail to see. This may be a long term bet and I may have to endure eating crow for a few years, but we’ll see. For me personally, once Bay Area housing long term appreciation drops to around 4% it will no longer make sense for me to hold. With cash flow of 0.5% and 4% appreciation total return is 4.5% of which around 2.5% will be lost to inflation leaving a net real return of 2%. That is too low for the pains of being a landlord. I will want to unload the houses. Unfortunately FOMO and inertia will likely make me wait until everybody wants to do the same… In any case, I’m keeping my Bay Area real estate for now but have stopped making new investments in this market.
        My first investment in the SP500 in 1991 has still outperformed my first Bay Area rental house (and briefly residence) in total return — in spite of all the real estate appreciation.

        1. Good stuff. I would definitely not trust Zillow’s +20% estimate. The market has definitely softened, even for the lowest end property in the worst areas.

          But the one thing that I’ve noticed about bay area residents is that everybody has gotten rich if they’ve been here for longer than 10 years. Everybody has outperformed the stock market and the real estate market for a while now.

          But the one thing that confuses me is that why do people continue to work so much? If people can live off their interest income, why continue to grind? Further, if you’ve bought a house for each of your children, what’s the point? It’s almost like a disease.

          What does your current asset allocation look like?

          1. I agree with you on the peculiarity of Bay Area behavior. Many Bay Area residents are quite rich by US standards which puts them in the top 0.1% on a worldwide scale (yes many of the American 99% who demonstrate in the streets are in the world’s top 1%, so, I guess they too “owe their fair share”, but that’s another discussion).

            I do though have some ideas that partially justify what seem to be obsessive circumstances in the Bay Area. Many Bay Area residents do leave so the voices that stay (and you hear) are somewhat self selecting, some are very smart foreigners tolerant to much worse, some say “a handful of more years and then I’ll quit” but never do, and most just never get on the road to FI because all their potential savings go into housing. But I think that is a long discussion. Perhaps we can have it piecemeal over some future posts.

  10. Ms. Conviviality

    Other than saving up cash to invest in individual stocks if there is at least a 5% dip, I’m not changing any of the other investments but I’m not contributing additional funds to them either. Below are the percentages invested with YTD gains and losses :( in parentheses:

    Crypto 37% (-41%): We knew that this was a high-risk investment going into it but we still believe in the technology so we’re holding on…didn’t even sell anything off during the first big drop.

    Individual stocks 25% (10%)

    Mortgage notes 23% (25%)

    Silent partner in rental boat business 9% (9%)

    Underwater rental property (-2.3%): Since there is no equity in this property, I’m calculating the loss as the difference between the mortgage and rent collections and what percentage of total capital that amounts to.

    Cash 8%

      1. Ms. Conviviality

        You know how banks have such huge spreads when issuing mortgages? Now imagine that you are in the position of the bank just by owning that mortgage note. The mortgage notes that we own were purchased from a hedge fund at a huge discount. Most are non-performing notes, meaning the homeowner had stopped making payments on the mortgage. The profit is made by making the note more valuable. This is done by modifying the loan terms so that the homeowner can afford the payments and once they’ve consistently paid on time for 12 months then it becomes a “performing note” which is more valuable to another investor looking for passive income without the hassles of being a landlord. There are different strategies for making money with mortgage notes, our method is just one way. There are the unethical investors that simply buy non-performing notes with the intention of foreclosing on the property and flipping or renting it out. We steer clear of any notes where the homeowner would be pushed out of their home.

        If you think that a 25% ROI is impressive on the mortgage notes then I should tell you that the actual gains so far are 50%. We (group of 9 investors) have an agreement with our investment partner that he gets half of the profits for all his work in finding, researching, and purchasing the mortgage notes. He does all the legwork so we consider the mortgage notes as passive income. We have access to all the information/documentation to research and vet these deals ourselves but there is so much to learn and research for each note that the work equates to a full time job. If we were to print out the files that our partner goes through, it would be a stack about 2 inches thick and a lot of the times, after going through the files he determines that the note wouldn’t be a good buy so all that time in reviewing was for nothing. Our partner has a pretty sweet deal since he doesn’t put up any capital for the notes that are purchased but we aren’t complaining because we don’t know where else we could get a 25% ROI. It would be logical to invest more of our money into mortgage notes due to it providing the highest ROI but we’ve only been in the mortgage notes for 1.5 years so we wanted to see how well it actually does. I should also share that when the group of 15 mortgage notes were purchased for $500K they were estimated to be worth $1.1M which is a 100%+ ROI so we were expecting a 50% ROI instead of 25% but all mortgage notes are not created equal so we won’t know what the true return on the notes is until after they are sold off or mostly sold off. Two of the 15 notes, properties in Chicago and Dallas, have such a huge spread that we might not ever sell them off. So far, 7 of the notes have been sold. We get the principal plus the profits right after each note is sold so the capital is free to be reinvested in more notes or elsewhere.

        I did read that article that you linked. I think your advice to put only 5-10% in speculative investments is good for people that have family that depends on them and/or actually need to make careful plans with their money to survive in the future. I’m viewing the money put into cryptos as my “you only live once” money. How would I feel years from now when the cryptos skyrocket? I would kick myself for not investing more money. How would I feel if we lost all the crypto money? Obviously, it wouldn’t feel good but we would still enjoy our lives because we aren’t dependent on that money. My confidence in cryptos is based on the belief that the blockchain is a much more efficient way to process payments and transactions. There are so many other resources out there that could do a better job of explaining how the technology works so I don’t even want to attempt to explain.

        1. Fascinating stuff. That is a good deal for the person finding the investments to earn half of the profits with no money down and no downside risk! Hmm, sounds like the best way to make money to me.

          25% is amazing. If he’s looking for more money, let me know.

  11. Simple Money Man

    Great mid-year review! My portfolio’s been pretty much flat. I’ve bought a couple times into vanguard funds when the price dipped over 2-3%. I plan to use this deployment method the rest of the year. Pretty simple. I recently bought a muni fund as well to balance the portfolio’s asset allocation. My goal is to continue deployment as well as try to max out my 401k.

    Thanks for the Personal Capital “your index” tip by the way!

  12. I am surprised that you have some individual stocks that produce very little EBITDA. That is not logical based on your risk aversion. I am impressed that you smartly went with a low cost S&P index fund IVV even though it is not as liquid and safe as SPY. But I understand you want the slightly lower fee and you are willing to take the additional risk.

    On the real estate funding site I am glad you had dinner and got some good inside info about the committees. That will likely convince me to go at it again and reusing realtyshare larger investments. I admit that your relationship with realty shares is probably the most valuable info you pass along to your site visitors that is unique to you.

    On a side note. You know that I am from Minneapolis and I know that building. I saw all the email ads form realty shares and was thinking about going into it since I know the place.
    This building has been unable to find good tenants for about 20 years with multiple owners, so I could not get past that. I hope you will be successful with it. The good news is that it is on the skyway system. Never invest in Minneapolis if you are not connected to the skyway system.

    Bonds are below 3% again. And the curve is on the verge of inverting. That means 3% bonds are now upside down to the time of 10% from the high. That is volatility. This volatility is much more extreme in a low interest environment. 30 bps drop when interest rates are 6% is much less percentage wise.

      1. I am 90% equity with only dividend paying stocks no higher than 60% payout ratio. 10% real estate. No bonds.
        2/3 individual stocks (largest position by far is Apple. Bought in sept 2009 bought during crisis because it had the best balance sheet of all public company at the time-safety) cashed out of my BABA from ipo at $175 that was my 2nd largest posit-on and reinvested in BP with fat dividend. My only remaining spec play from an EBITDA ratio to price is ISRG. 1/3 SPY. Weighted average dividend is 2%. Minimal cash as I rely on dividends to access cash if need be. Up about 17% year to date. I am not diversified in my equity. I believe that you concentrate to get Rich and you diversify once you want to maintain. Too bad I can’t load a picture snapshot of personal capital app.

        1. I forgot to mention. I consider BP a spec play. I have about 3% of my portfolio as spec/ high risk of price change. Basically I don’t care if I loose it all on that small slice even though it is a significant $ amount.

    1. Very interesting to know about the Minn property! We shall see how they do in 5 years. I wouldn’t invest in Minn. property if I already owned my house in Minn. I would be looking to find real estate diversification outside of where I live.

      With Minn. so cold for 4-5 months a year, and needing skyways, what are some reasons why you live in Minnesota? How is the local economy doing from what you see?

      1. You have a great point on not having business real estate knowing we have primary residence there.

        The economy is actually quite good. As you know this place is highly educated and the type of companies here are good: 3M, Medtronic,Bestbuy, SuperValu, General Mills, Hornel,….about 20 Fortune 500 for a relatively small population with a bias towards medical device companies. So the incomes tend to be higher than the surrounding states. It is also easier to survive economic downturn because people always need medical devices and food and those are the primary industries.

        I am here because I am married to one of those medical device person. While we could retire today, we will be retired in the next 2 to 5 years.

        We have a significant amount of investments tied to qualified accounts so we need to move to one of 7 soon to be 8 tax free state or go to a state like Illinois/Chicago and benefit from the lack of taxes on. Any retirement income qualified accounts(IRA 401k). MN has progressive tax rate that goes quickly to about – 10% tax rate.

        One strategy is to pay the higher federal tax rate up to 35% while trump taxes are still in effect and go to a tax free state for 1 year. Then we can move to any US state since 80% of our net worth would be all converted in a Roths.

        Not as efficient as converting a fee hundreds thousands at a time over 20 years. The other benefit of 100% conversion before trump tax expiration in 2026 is that we would not be subject to the supper expensive $10,000 per couple Medicare annual premium. That will likely keep increasing at 20% a year because of the bad Medicare hold armless rule that make the top 20% of Income retirere for 100% of the inflation increase on the 80% others because those 80% people can not be charged more than what they get as an increase in Social Security Cola which we know is not indexed to CPI anymore but the chained one. So cola 1% but Medicare 5%. Therethore the 4% spread as to be paid for by the richer 20% 65 year old people that are required to pay for Medicare and 4% * 1/5 = 20%. You get the idea. It is on a path to no return for wealthy Medicare recipient. Based on that alone I think it is worth accelerating the Roth conversion.

  13. This was a really good post. It’s always nice to have a little check-in to reevaluate where you are at the moment. Not surprising given the comments, but I’m in the relative de-risk camp with most people here. My numbers from June:

    2% – Cash
    7% – Individual Stocks
    27% – Real Estate
    64% – Fixed Income

    Ideally I’d be a little more liquid, but as long as I have $50,000 cash I feel ok. My passive income is enough to live on, and my wife makes good money working a part-time in a job that she really enjoys. I’m only in my mid 30’s, so I eventually want to get my Fixed Income allocation down around 50% and bump up my equity allocation to around 15-20%. But given the current market environment I’m not in any big rush. I’ll probably spend the rest of the year stashing cash and/or paying down debt.

  14. compoundsnowly83

    Thank you for this update as it is very helpful to understand the performance. I have a couple questions that I struggle with in terms of judging performance that would be helpful to understand:

    i) when you change the total invested amount, what do you use as the denominator to calculate your performance?

    ii) do you take into account the tax implications of selling or are you doing the selling / rebalancing in a 401-K account?

    iii) do your returns include the dividends received for the YTD period?

    Thanks in advance and congrats on the spectacular performance and continued success.

      1. compoundsnowly83

        I have not done much re-positioning for the second half of the year
        other than invest a slightly higher portion of my cash position at a slightly slower rate and allocate more cash to treasuries as the yields have started to increase.

        My largest holding by far in my public equity portfolio is Berkshire which I have continued to buy every month in 2018 and hope to never need to sell. I actually did not sell one stock in 2018 yet in 2018 of about 50 stocks in my current portfolio as I’d rather compound without paying the capital gains. I have historically and continue to allocate a very small portion of my portfolio to tech stocks as I have been always concerned about obsolescence risk but that has been a drag on my portfolio.

        I also choose to keep a sizable cash position as I work in private equity and invest a sizable portion of my net worth in our funds that are obviously not liquid and have capital calls at random times.

        Lastly, I am looking to allocate more dollars to real estate as I did my first commercial deal this year but am waiting to invest more capital into real estate until I have a better understanding of how the increase in rates will impact rents and real estate values.

  15. You’ve definitely taken a different approach than I have. I used to be more active in managing my investments, and got too active and ended up messing them up. Since then, I’ve switched over to a buy and hold strategy sticking with a diversified portfolio for the long term. Investments which are aggressive, yet have show to do well over the long term, like SP 500 index investing. If I can average 8% yearly return, I’m happy.

    Individual stocks are always iffy for me. Some have a great return, some can tank.

    I’ve looked into real estate, but I just can’t make the numbers work. Looks like a whole lot of effort to make single digit returns. Probably depends on your geographic area. Around Chicago, property tax is a killer and property may not appreciate as much as I’d hope.

  16. How are you positioning your investments for 2H2018? How have you done so far? What are you investing for?

    I am positioning for: continuing bull market for 1-3 years; focussing on growth stocks, avoiding value and income plays, mostly blue chips, 40/60 Cdn/US stocks; continuing to avoid all commodities; continued sinking CAD versus USD; no or small rate increases as MV of bank stocks indicates rates will not rise soon or enough to increase profits; undecided on defense stocks as European backlash on tariffs is pushing them down; very little cash on hand; positioning in sectors that do well late cycle, possible inflation and rate hikes, but market is not supporting this yet.

    So far, this year, 14.3% increase in MV of portfolio (down from high of 18.2%). No increase in real estate MV. Will increase rents as tenants turnover.

    I am investing to produce income and grow my portfolio.

  17. Paper Tiger

    UGH, this is a great thought-provoking article for me. I have stayed the course for 30+ years and kept with my planned asset allocation and remain heavily invested in Equities. I’m 60 and our current allocation is:

    Company Stock + Index Funds: 73.5%
    PE Funds + Angel Investments: 10.8%
    Cash + CD + Bonds: 15.7%

    I’m toying with the idea of rebalancing through my 401Ks and moving about 1M to Bond Funds. Doing so would change my mix to the following:

    Company Stock + Index Funds: 59.7%
    PE Funds + Angel Investments: 10.8%
    Cash + CD + Bonds: 29.5%

    I will probably work another 5 years and already have a pension that has kicked in from a former employer. Part of me wants to stay the course but another part of me knows my current allocation is probably too aggressive for someone my age.

    Sam, thanks for making me think about this and look at it a little more closely ;)

      1. Paper Tiger

        As of July 1, it is 6.9% of our portfolio. One of my biggest investment mistakes was falling in love with company stock and not divesting sooner.

    1. I think it is GREAT you’ve stuck to a 70%+ stock strategy for 30 years. Surely you’ve done amazingly well no? Can you share your historical returns? This would be good for others to learn about, and also some lessons you’ve learned from all those years with such an asset allocation.

      One question though: with such a strong bull market for the past 30 years, have you considered retiring early?

      1. Paper Tiger

        Sam, the best way to respond to your questions are through the Millionaires Interview I did on ESI. It was a pretty comprehensive look at our investment history and lessons learned. I hope you don’t mind me including the link for your readers. It also will answer why I’m still in the game and not yet retired.

  18. We Want the FIRE

    Hi Sam,

    Congrats on your 1H performance! I’m an indexer so gains have definitely not been as high so far in 2018. Two questions:
    1. Does your 10%ish comment on individual stocks align with a previous post to “swing for the fences?” That resonated with me and I’ve been thinking about shifting 10% of my investable money towards this mentality. I look forward to a post on it.
    2. Side question related to some of your comments above. We are building a new house and close in August, I have locked rates yet, but you think we’re trending down from here into mid august?


    1. 1. Yes, I always try to “swing for the fences” with 10% of my investable assets. The only investments that have really made a huge return are single stock buys or real estate, which is a concentrated bet.

      2. I think we’ve seen a cap. Per my conclusion in this post, “it feels like we’re going to be stuck in a +/- 5% range for the S&P 500 and a 2.75% – 3.11% range for the 10-year bond yield.”

  19. well done Sam- looking to build a few stocks into a million dollar portfolio. But I do believe in the flight to quality phenomena- I say buy the dollar index or sell weaker currencies in the FOREX.
    I love reading about your future Hawaiian beach house adventure! So worth it!

    1. The dollar should gain strength given we are raising rates and the US economy is doing well compared to the relative instability in other regions. Something I’ll look into. thx!

  20. MrFireby2023

    I like the fact that you’ve become more risk averse and your asset allocation truly reflects this. I’m also a fan of tactical deployment of cash when opportunities abound, as in your bond purchases and recent ETF & NFLX purchases. I’ve also been very tactical lately and it’ll pay off for both of us later this year, maybe by end of Summer.

  21. Always enjoy these kinds of updates Sam!

    We have put about $265,000 to work so far this year. It has been a mix of stocks, crowdfunded real estate deals, hard money lending, life settlements, and towards our mortgage.

    As we have discussed in the passed on this blog, we were originally working to pay our mortgage off in seven years. Since our income has blown past our wildest projections, we recently decided we would pay it off by July 2019 (about three years early).

    The remainder of the year will mostly be our continual deleveraging via paying down the mortgage. We currently have $220K to go, as of the end of June 2018.

    I guess that is us going into conservative mode as well.

    If the market stays strong we have a good shot at officially making the double comma club. It’s a big range but I anticipate our net worth being up 35% on the conservative side and 50% on the aggressive end (all stars aligned).

    Always a pleasure.



    p.s. what comment plugin are you using? I need a better one for my blog.

    1. Well done on such huge growth Dom. Keep that up for the next 10 years, and you could be looking at $100 millionaire status! Seriously, the power of compounding is incredible.

      I’m just too afraid to take too much risk at this point in the cycle. Slow and steady for me.

  22. Superb write up! Investing is long ball. How you have clearly defined your goals and adjustments to your investment thesis demonstrates a sharp mind!
    I am a burdened contrarian but have employed a smilier plan to make plans and goals into realities. You use a lot of mental elbow grease, and it shows!

      1. Sam,
        I buy when I hear gun fire and sell when I hear trumpets. That said, I re adjusted a pretty good portion of my portfolio day after election. Some of my ideas born of my one page manifesto where that after election mid west rewarded and people would behave badly, the border would be an issue/ he said it over and over and “keep your enemies close (Paul Ryan) thus wisconsin>Defense and light tactical border/police vehiclesGEO, OIL( export now OK/Iran/Iran/Iran>XOM. Easy Divy will await oil to perform and others have really outperformed GEO=100% cap appreciation and 10% dividend on cost basis
        I also carry a note at 6% on business sold approx. 3 years ago. Property in booming town and one of the last raw, developable lots next to a four year university in that town. Paid primary home (River view) when world exploded in 08′ ( risk free 5.5.% back then)
        Last, a good river for salmon fishing, a good trailer and tent, good dogs, good firewood, a good wife ( and only one ) and a great love of the outdoors ( Low cost of living). That was my “secret sauce” to be FYI and retire early.
        You should read “The Exit Strategy” if you are within 3-4 years of selling your business to really squeeze the juice from the sale on all levels, emotionally, timing. price etc. It was a good read and just another data point for me.
        Last, if I wasn’t so damn lazy and had more ambition I would have pursued my idea for you that I twice had eluded to. But, alas, I am a bum. O.k. time to get the mint bright, river fresh, steelhead on the smoker! Regards, John

        1. sorry typos:: The Wisconsin/defense idea was OSK (Oshkosh industries )
          and GEO was my post election thesis of civil and border unrest and “Law and Order”…

  23. “To those who have everything, more will be given: from those who have nothing, everything will be taken away” Mathew 25:29

    40% VFIAX
    30% 1 month to 6 month Treasuries to buy 10% to +30% dips.
    30% STOCK foundation over many years with low basis.

    My only real goal is to run 1 mile per day every day.

  24. Your portfolio looks great! And thanks for sharing all your experiences so that the rest of us can learn. I have a realty shares account, but haven’t yet invested. I appreciate posts like this because it helps me get a little more comfortable with real estate crowdfunding. Thanks again.

  25. Moved everything that’s liquid to cash or STFI mid June. Giving myself some time to reevaluate how I want to be positioned.

    Can’t imagine a financial advisor would do any better than you already are. No one will care as much about your money as you do. You look to be doing really well managing yourself. I’d just continue self managing to help reduce fees and have peace of mind.

  26. These “Money where your mouth is” posts are my favorites you post. Excellent analysis and results to back it up as usual. Kuddos.

    As we are still in the growth portion of our investment approach, I’ll just keep plugging money into our accounts which are largely stock and hold my nose for a plunge, if one happens. If you have the time, maybe you could post about what folks should do if they are not already rich when a downturn happens.

  27. Damn Millennial

    Great first half of the year. Happy to hear you are hitting your goals for the year.

    Feels good to see yields moving up. Even online savings accounts are paying 1.75% and up.

      1. NativeTexan

        We have been buying CDs lately–in 6/12 mo terms–to have a ladder. I use to check rates. There is post giving info re Andrews FCU new money CD rate for a 7 mo CD of 2.75%–that is great rate.
        If you are not local/eligible, you can join American Consumer Counsel and that membership allows you to join Andrews FCU–$8 per yr per person, 15 for lifetime…seems worth it.

        The CIT rate is also listed and is the highest for 12 mo–but the shorter term is attractive if you are considering laddering rates.

        Enjoy your blog–thanks for not being afraid to share your winners and losers…

      2. Both Fidelity and Vanguard has fixed income products, usually, the website give you a table view of what’s the best current market yield across CD, US government, Investment grade bond and high yield bond for different maturity. You can make your choices on what type of risk you can tolerate for what level of yields. Even though CD yield at 2.5% is attractive, 1yr US government note is yielding 2.34% now, for high state income tax CA, you probably should just buy the 1yr note because you don’t pay local state tax on government note/bond interest.

  28. 2018s been rough for us. A large portion of my compensations in my corps stock. They are one of the companies that did great last year but this year not so much. I see my RSUs down almost 20 percent over six months. Since this is a big input to my savings , but not my only one, 2018 has been largely a small number game. My other existing investments are relatively flat.

  29. Great job in H1. We’re flat for the year. Our dividend stock investment is not doing well at all. Many stocks are down due to one reason or another. Everything else is flat too. For the 2nd half, I’m looking to invest more in RealtyShares. The yield seems to be coming down with RealtyShares. Most projects return less than 15% now. I’ll keep looking.

  30. Nice job beating the S&P 500 overall in your stock portfolio and also increasing your net worth! Things are starting to feel dicey out there in the markets and I think you’ve positioned yourself well and have had a successful first half. Speaking of which I can’t believe it’s July already. The first half of the year has flown by so fast. Your comment on single name stocks making such a difference is intriguing. That’s one strategy I have shyed away from for over a decade bc I don’t have the risk tolerance, discipline to research or smarts to do it well. Props to you for getting it to work well in your portfolio!

  31. You obviously know not only how to get rich but stay rich:) My allocation is

    Domestic Stock 42%
    Foreign Stock 16%
    Bonds 14% (Investment grade bond ladder)
    Short Term 22%
    Crytpo 2%

    Id like to get your thoughts. Im watching the 10 yr closely as well. This is one of your best articles of 2018!

    1. I’m going to look into more foreign stocks because they have been such laggards. Crypto is getting tempting as a speculative play, but I’d love to see more pain first. I don’t know your situation so I don’t know what to think about portfolio.

      1. Poulsbo dawg

        Once you are ready for crypto, look into GET Protocol and Sweetbridge. Also, read up on “discount tokens”.

  32. Damn Sam, you’re killing it. Even though I’m an index fund investor I could kick myself for not buying Amazon about 5 years ago when I strongly considered it. Oh well, hindsight.

    I also think I’m too aggressive right now and am trying to move more to bonds. But I’m not overly worried about it. If the correction came now I could weather a downturn way worse than 2008 and still be fine. And I’m confident I’m young enough to see the recovery.

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