Financial Samurai Newsletter June 2, 2024: Buy Vs Rent Debate Rages On

This is a free Financial Samurai newsletter that was published on June 2, 2024. Every week, you can access the latest issue of the FS newsletter, which is designed to help readers like you achieve financial freedom sooner rather than later. Join 65,000 other savvy readers and subscribe here for free. This way, you'll never miss a thing.

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Financial Samurai Newsletter June 2, 2024: Buy Vs Rent Debate Rages On

One of my favorite debates is the buy vs rent debate. I've been pro homeownership since 2000 after witnessing stock market wealth evaporate when the first dotcom bubble burst. We went from so good to so bad in the blink of an eye.

Back in 2000, I kept thinking how nice it would have been if I had sold Yahoo stock and bought something I could permanently use, like a nice coat for the frigid NYC winters or a motorbike to ride up to the Catskill Mountains.

Luckily, I ended up selling enough stock for a down payment on a San Francisco condo in 2003. The condo did well until the financial crisis, declined in value, rose again, then declined once more when COVID hit as more people wanted more space. Now, it’s slowly inching up again.

Overall, it has underperformed the S&P 500 since 2003. However, the mortgage is paid off and it provides a steady $3,000 a month in semi-passive income. I also don’t know if I would have been able to keep my down payment invested in the S&P 500 since 2003 without ever selling a share.

What I recently realized in the buy vs rent debate is that, over the long term, owning your primary residence may make you happier compared to renting. The main reason is due to a greater sense of economic security.

According to the Fed, the typical American spends about 33% of their disposable income on housing. If you can largely fix that cost, life becomes much more affordable. And when life becomes more affordable, you become more optimistic. When you are more optimistic, you are happier.

Neither higher inflation nor higher interest rates have as big of a negative impact on your day-to-day lifestyle. It’s kinda like Hawaii residents hearing about polar vortexes blasting 70% of the country. They see the news but just go on with their lives.

For more on this debate, check out: How Homeowners and Renters See the Economy Differently. Don't forget to fill out the one-question poll at the end.

Paying Cash For A House

As you can see from the chart above, roughly 35% of homebuyers pay all cash. That's quite a lot if you ask me. Can you imagine if one out of every three people on the street was a zombie from The Walking Dead? You'd never leave the house.

What I realized from the second time I purchased a home with cash is that you give up the game of maximum wealth creation. You'll also no longer be interested in wealth hacks, like opening up tons of credit cards for the sign-up bonuses. What you'll mainly want is to simplify life and save valuable time. 

Baby Boomers make up the largest share of these buyers, with more than half of people aged 58 to 76 paying in all cash. As a result, all-cash buyers tend to be more aware of their mortality. They want to tie up loose ends so they don't leave their children with debt.

The funny thing is, I still have two mortgages on two rental properties. Even though the rates are 2.125% and 2.625%, which are negative real mortgage rates, I'm itching to pay them off.

If you're thinking of paying all cash for your next home and you're younger than the Boomer generation, read this new post: The Intricate Psychology of Paying All Cash for a Home.

Debate About The Latest Inflation Data

April Core PCE came in at 0.249%, or about 3% annualized. The year-over-year figure was 2.75%.

One camp says the latest inflation data is too high and argues against any rate cuts this year. Another camp believes the trend is heading in the right direction and expects the first rate cut to begin in September.

To me, it seems clear that inflation is trending down, and I wouldn't be surprised to see a steeper drop in Q4.

Low Expectations For Summer

I'm prepared for a summer malaise in the stock market given we've rallied so much, Treasury bond yields are still high, and the S&P 500 is heavily concentrated in tech. It feels risky chasing growth stocks now, especially with companies like Dell and Salesforce taking big hits after earnings misses.

So maybe it's time to return to good old Treasury bond investing. This may be the last year of 5% guaranteed returns for Treasuries with one-to-10-year durations.

I can't help but think about how easily growth stocks lost so much value in 2000. When in doubt, turn some of your funny money gains into real assets. You might not make as much, but you'll increase your chances of keeping your gains if you do.

To Your Financial Freedom,

Sam

Ready to read other issues of the Financial Samurai Newsletter? Check out Weird Misfits and Melt-Up Potential.

Buy Vs Rent: Get The Most Out Of Your Savings

Looking for a good place to park some cash and earn the best interest rates? Wherever you sit on the buy vs rent debate, aim to get the most out of your savings. CIT Bank is currently my favorite online bank where you can earn maximum interest in their Platinum Savings account. CIT also offers high-yield Savings Connect accounts, money market accounts, and CDs. 

Because they are an online-only bank, CIT Bank doesn't don't the overhead costs of expensive physical branches. Most traditional banks still can't beat CIT Bank's rates today. As a result, they can offer the most competitive interest rates.

CIT Bank is offering competitive 11-month No-Penalty CDs, 13-month CDs, and 18-month CDs. Take advantage today and open an account securely with CIT Bank in minutes. To learn more, check out my comprehensive CIT Bank review.

Plan For Retirement Easily With Technology

Want to plan for retirement but don't know how to get started? Check out Boldin, a retirement planning tool built from the ground up with the most robust features on the market today.

Boldin takes a holistic approach to tracking your net worth by looking at real estate and other investments. Further, you can model various “what if” scenarios to help better plan your future.

As someone who helped kickstart the modern-day FIRE movement, my favorite feature of Boldin is its Passive Income tracker. After all, being financially independent is about having enough passive investment income to cover your desired living expenses.

Boldin Passive Income Tracker Tool

You can read more in my comprehensive Boldin review.

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