In last week's newsletter, we discussed buying the dip. Now, we've nearly climbed back to all-time highs. With more benign inflation data (CPI 2.9%) and fewer unemployment claims, fears of a recession have subsided once again.
However, the volatility we've experienced over the past month has introduced uncertainty into investors' minds. You could say we're entering a state of fragility, where any bad economic news could bring us back down. We're so close to the Fed's first rate cut since raising rates in early 2022.
The latest drawdown served as a good reminder to review whether your investment asset allocation aligns with your risk tolerance. If you found yourself feeling more uneasy than usual, with a shorter temper and constantly checking the markets, your asset allocation may be too risky.
I encourage you to speak to a financial advisor to get a second opinion. Empower, the provider of the tool I've used to track my net worth since 2012, is offering a consultation for Financial Samurai readers with $250,000+ in investable assets.
Here's what you get:
- Free Information Gathering Call: Discuss your financial goals and concerns with an Empower financial advisor.
- Free Portfolio Analysis: Get a professional assessment to identify potential red flags in your portfolio.
- Tax Reduction Strategies: Explore ways to potentially lower your tax bill.
- Children's Education Planning: Receive guidance on planning for your children's future education needs.
There's no obligation to work with Empower, but a free second opinion never hurts. Their financial advisors review portfolios daily and can provide insights into what others in your situation are doing.
I had a free financial consultation with them in the past while I was consulting with them part-time. The financial advisor highlighted areas of concern in my portfolios that I hadn't considered. It was also helpful to discuss my financial goals and see what my investment portfolio could grow into if I followed various steps.
The Futility Of Working So Hard In A Tough Market
While I was hemorrhaging money in the stock market, I took a moment to reflect on the futility of working so hard (new post). It reminded me of the time during the global financial crisis when I was working my tail off just to keep my job. My colleagues and friends in the industry were getting laid off left and right. Back then, it was all about survival. Fifteen years later, the story is different, thanks to a strong economic recovery.
At some point, you might reach an investment threshold where you start making (or losing) more from your investments than from your annual job income. When this happens, work begins to feel optional, and you start questioning the trade-off between time and money.
I started feeling this way in 2011 and 2012, as the stock and real estate markets were recovering. By 2012, I estimated that I had enough money to leave work behind and do nothing for a year.
Back then, there wasn't an easy formula to follow. I don’t recall discussions about accumulating 25X your annual expenses, which I don't think is the best way to determine when you're financially independent. My 20X gross income target hadn't been developed yet either.
The Formula That Might Change Your Life For The Better
After 12 years of leaving work and experiencing all the trials and tribulations of not having a day job, I've finally come up with the Investment Threshold Formula where work starts becoming optional. The formula is calculated by taking the inverse of the historical return of the asset class you own and multiplying it by your gross annual income.
When you reach the Investment Threshold amount in the asset class you plan to own for retirement, you are free to take it easier at work, find a more enjoyable job that might pay less, go back to school, or take a couple of years off to take care of your kids.
Visually, the formula looks like this:

I have a whole list of important personal finance ratios and formulas. But if you're starting to feel burnt out from your job and want to explore other options, my Investment Threshold Formula gives you a concrete number to aim for.
Frankly, I’m surprised it took me this long to come up with this formula. Perhaps it required 12 years of living a work-optional life to build the confidence to share it with the world. I never feel comfortable introducing financial concepts without firsthand experience.
Good News For Sellers And Buyers Of Real Estate
Starting August 17, 2024, due to the National Association of Realtors lawsuit settlement, the real estate industry is undergoing significant changes. The most important takeaway is that real estate commissions are finally coming down by a meaningful amount.
In a new real estate post, I share an email from a Sotheby’s real estate agent, one of the largest brokerages in the world. They are now advising their clients to negotiate a 2% commission rate for each side. I have NEVER seen this kind of public willingness from the real estate industry to lower commissions.
Since Sotheby’s is open to accepting a 4% total selling commission or lower, other real estate brokerages will likely follow suit to remain competitive. When transaction costs decrease, consumers win.
To Your Financial Freedom,
Sam
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