The main thing on my mind this week is how fragile the stock market feels. A cheaper AI model coming out of China? Stocks sell off. Trump tweets about reciprocal tariffs? Stocks sell off. Google announces $75 billion in 2025 CAPEX versus the expected $58 billion? The stock corrects by 10 percent.
All sectors are still up year to date, but for how long? Looking at history provides some insight.
During his last term, former President Trump launched major trade battles, particularly with China, starting in July 2018. On July 18, 2018, the S&P 500 was at 2,800 before declining to 2,485 by December—an 11 percent drop. However, by January 2020, when Phase 1 of the trade deal was signed, the index had rebounded to 3,300, delivering a 32 percent gain. If history repeats, a 10 percent correction could be a strong buying opportunity.
Market pullbacks are always uncomfortable but nothing new. Since 1950, the S&P 500 has experienced a correction of at least 10 percent every 19 months on average. Since 1980, the average intra-year decline has been 14.3 percent, and bear markets of 20 percent or more occur about once every six years. So try to remind yourself of these facts if the stock market sputters. We've been spoiled these past two years.
Given current conditions, I would say there's a ~60% chance the risk-free one-year Treasury bond could outperform the S&P 500 this year. With Treasury Secretary Bessent focused on lowering bond yields to reduce mortgage rates, the trend should support both bonds and real estate as financing conditions improve.
Read: Trade Wars Could Be Exactly What The Housing Market Needs To Heat Up
Middle-Class and Retiree Tax Cut Proposal
One of the most significant developments this week is the White House’s proposal for tax cuts aimed at middle-class workers and retirees, including:
- No tax on tips
- No tax on Social Security benefits for seniors
- No tax on overtime pay
- Renewal of the Trump Tax Cuts from the 2017 Tax Cuts and Jobs Act
- Raising the SALT cap
- Ending tax loopholes for billionaire sports team owners
- Closing the carried interest loophole for hedge fund managers
- Tax cuts for Made in America products
For those striving for financial freedom, tax cuts should accelerate the journey. More money in your pocket means more investing power to reach your net worth goals faster.
Eliminating taxes on Social Security benefits would be a major win, considering that 40 percent of retirees rely solely on Social Security income. After paying FICA taxes for decades and receiving substandard returns, it only seems fair that benefits should be tax-free.
For anyone planning to retire before age 62, it may be best to mentally write off Social Security entirely. If Social Security remains intact in your 60s, it will feel like a bonus. If not, then there is no disappointment since it was never factored into financial plans. The best strategy is to focus on building taxable investment accounts while maximizing contributions to 401(k)s and IRAs.
Raising the SALT cap from its current $10,000 limit would also have significant financial implications. If increased, expect more demand for high-cost real estate markets, as homeowners could deduct a greater portion of their state and local taxes.
Read: Tax Cuts For The Middle Class And Retirees: A Win For Your Wallet
Hard Work Isn’t Forever
Lately, the sheer volume of financial news has felt overwhelming. Market swings, policy changes, and economic shifts all demand attention. A long weekend didn’t help matters either. But does anyone else feel exhausted just 40 days into the year?
It is a good time to remember that hard work doesn’t last forever.
When I worked in finance, my days started at 5:30 a.m. and often didn’t end until after 8 p.m. The long hours were exhausting, but they only lasted 13 years. Now, I have had 13 years of financial freedom to reflect on that time.
Looking back, I would have started building my side hustle earlier rather than taking a 3-year break after business school from 2006 – 2009. Financial Samurai didn’t launch until July 2009 because the global financial crisis finally motivated me to take action. The benefits of starting it sooner would have been significant.
When work feels overwhelming, keep in mind that effort compounds over time. A few years of focused work can open up decades of financial flexibility. The worst outcome is looking back and wishing more had been done when there was still time.
Read: Don’t Lose Financial Opportunities Due To A Lack Of Hard Work
Book Jacket Done!
Thank you to everyone who has pre-ordered my upcoming book, Millionaire Milestones: Simple Steps To Seven Figures. This week, I finished up the final edits of the back cover and the inside flaps. Here's a preview.
You can pre-order a copy on Amazon or wherever you like to purchase books. As a token of appreciation, I will be sending a small gift and exclusive access to something special I am putting together. A sign-up sheet will be sent before the end of the month for those who pre-ordered to claim their rewards. Stay tuned.
To Your Financial Freedom,
Sam
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