Newsletter For Jan 19, 2025: Moderate Inflation, Better Days Ahead

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Dear Financial Samurais,

Thankfully, we had a much better week overall. Hopefully, the worst of the Southern California fires is behind us. While there’s still no rain in the 10-day forecast for San Francisco or Los Angeles, at least there are no reports of major wind gusts on the horizon.

On the inflation front, both PPI and CPI numbers came in slightly below expectations, reigniting hopes for a potential 0.25% Fed rate cut in the first half of 2025. Current odds now stand at 40%-50%. Just days before these inflation numbers were released, there was actually a ~30% chance of a rate hike in 2025. With year-over-year inflation comparisons expected to ease in the coming months, the rate hike concerns appear to be off the table for now.

As a result, the S&P 500 rebounded and has edged back into slightly positive territory for the year. Adding to the unexpected news, Trump’s launch of a meme coin—boasting an $8 billion market cap just ahead of his inauguration—has sparked whispers of a return to the speculative frenzy of 2021.

Inflation Over The Past 12 Months

Here’s an updated look at inflation trends over the past 12 months. Overall, inflation seems mild, with household earnings growing 3.9%—outpacing the overall inflation rate of 2.9% by a full percentage point.

Inflation chart

Rent (+4.3%) and housing (+4.1%) stand out as key areas of growth. With mortgage rates still elevated, it’s likely that more people are choosing to rent longer. The parallel rise in housing prices suggests the housing oversupply from 2020 and 2021 is being absorbed faster than expected.

Given this dynamic, I’m bullish on housing for 2025 and see much greater value in real estate than in stocks. That said, I'm still investing in both.

Two areas of ongoing concern for me are college tuition (+2.6%) and medical care (+2.8%). While these increases are relatively moderate, they remain critical expenses that could outpace earnings growth over the long term if left unchecked.

Time to Celebrate Your Wins

After a challenging start to the year, why not take a moment to calculate the extra investment gains your portfolio delivered in 2024 compared to historical averages? It’s a great way to appreciate your financial progress and enjoy the fruits of your success.

For instance, if your portfolio was 100% in the S&P 500, you’re likely up ~23% in 2024 versus the historical average return of 10%. That’s an impressive 13% of excess gains! It’s worth celebrating, especially since investing is ultimately about improving your quality of life.

Now, consider a retiree with a 50/50 stock/bond portfolio. If their portfolio returned 12% in 2024 compared to the historical average of 8.7%, they’ve earned 3.3% in excess gains. What’s even more exciting is framing this in terms of retirement security.

Assuming a 4% safe withdrawal rate, that 12% return translates to an 8% gain above your spending needs—essentially buying you two extra years of financial freedom!

Back-to-back years of 20%+ market gains are rare, making it even more important to relish these moments. With so much wealth accumulated over the past two years, it’s hard to foresee a prolonged bear market anytime soon. While 5%-10% corrections will happen, strong balance sheets across the board mean dip-buying could quickly stabilize the markets.

For a deeper dive into this feel-good exercise, check out: Calculate Your Excess Investment Returns to Feel Awesome.

A $500,000 a Year Household Income Should Be Enough to Live Well

With the help of ProjectionLab, we collaborated on an article titled From Struggling to Living Well on $500K a Year: Escaping the Rat Race Faster. It serves as a case study on how households earning $500,000 annually can save and invest more effectively using a powerful financial planning tool.

Having lived in New York City and San Francisco since graduating college in 1999, I’ve encountered countless households earning multiple six figures. For a couple in their 30s, making $500,000 a year has become relatively common, especially as 23-year-old graduates in tech, banking, or consulting now start with salaries of $150,000 plus stock and bonus.

I know some of you might think, “There’s no way a household earning $500,000 a year could face financial stress.” But they do. Most of the highest-paying jobs are concentrated in the highest-cost-of-living cities. While remote work and georbitrage to lower-cost locations are options for some, the reality is that climbing the corporate ladder often requires being close to decision-makers, whether it’s in law, tech, banking, or medicine.

These jobs can be extremely stressful, and I personally know many $500K+ households who feel far from wealthy. They’re tired, overwhelmed, and questioning whether the grind is worth it. Add children, a desire to own a nice home, and private school tuition into the mix, and the default assumption becomes working nonstop for the next 22-23 years until the kids graduate from college.

Imagine you’re a 38-year-old couple with two kids. Do you really want to stay in high-stress jobs until you’re 60? Most people I talk to answer with a resounding “Hell no!”

Having A Clear Financial Plan Would Have Helped Me

Personally, I burned out after 13 years and wanted out for good. Despite making multiple six figures, with a path to making over $1 million a year, the money was not enough for me to stay. In retrospect, though, if I had developed clearer financial plans, I might have stayed in the game for six more years until I turned 40. Doing so may have left me in an even stronger financial position today.

This is where tools like ProjectionLab come in. They help you visualize your entire financial future and craft actionable plans to reach your goals. I’ve spent hours using both their free and Premium versions to model my own projections. What I’ve discovered is that many of us may end up wealthier than we realize—if we plan and act accordingly.

Use ProjectionLab to help you develop clear financial goals

I encourage you to explore ProjectionLab and see how it can help you map out your financial journey. The clearer your plan, the sooner you can be free.

To Your Financial Freedom,

Sam

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