Dear Financial Samurais,
May’s stronger-than-expected jobs report gave the market a boost — the S&P 500 reclaimed 6,000 and the 10-year bond yield jumped back to 4.51%. It's a strange but welcome combo: capital appreciation and rising risk-free income. For those of us trying to straddle both, it feels like we're finally winning on both fronts.
Admittedly, it now feels a little weird to be more cautious on stocks just as more people are getting bullish. But everyone has to decide the best asset allocation for their own goals and risk tolerance. Below is an interesting valuation chart that shows where we are in terms of forward earnings multiples for the Nasdaq, Russell 2000, S&P 500, Equal-weight S&P 500, and S&P Midcap 400.
The Risk of Risk-Free Investments
As the risk-free rate of return increases, risk-free investments naturally become more attractive. I'm working my way toward a 60/40 portfolio and received my first month of risk-free income in May. The total came out to $1,847, and it was the most satisfying amount of income I’ve felt in a while. I wanted more!
But as I continued to sell stocks, I was reminded there's a real danger in focusing too much on risk-free passive income. The more money you make without having to endure volatility, tenant hassles, illiquidity, or fraud, the more reluctant you become to take risks. It can become a self-fulfilling prophecy — perhaps a little addicting.
Over the long run, this mindset could be detrimental to wealth building, as stocks, venture capital, and even crypto have historically outperformed Treasury bonds and cash.
Another unexpected consequence: the more risk-free income I earn, the less motivated I feel to be productive. I’m writing this article at 8:30 p.m. on a Saturday after a long day with my kids because I didn’t have the motivation to write it before they woke up. Part of the reason may be that I played 18 holes of golf for the first time in six years and was exhausted. But another part might be that the more I earn doing nothing, the lazier I feel.
In other words, this situation is the opposite of the “go broke” mentality I’ve adopted to stay driven. This visceral feeling of laziness is the #1 reason why we can’t just give our children money — they need to earn it.
Check out: The Hidden Dangers Of Earning Risk-Free Passive Income
Where You Live Or The Sector You Invest In Matters
Here’s another fascinating chart I stumbled across. It compares the stock performance of the Magnificent 7 (Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, Tesla) versus the S&P 493. Based on the chart, the S&P 493 hasn't done much of anything since 2005!
Since I’ve lived in San Francisco since 2001 — where most of the Magnificent 7 are based — I’m writing to you from bubble land. So take my views with a pinch of MSG. I’ve invested heavily in tech stocks and SF real estate, so yes, I’m biased. And given the strong results, I’m also a hyper-optimist.
But just because I’m biased doesn’t mean I’m wrong. I feel like I’m reporting from the front lines of tech mania, and what I’m seeing is a reacceleration of AI interest. To me, it seems obvious that AI growth will play out similarly to the growth of Google and Meta in the early 2000s. Of course, there are no guarantees.
The good news is that anyone with a brokerage account can invest in big-cap tech stocks or anything else that’s publicly traded. And now, anyone with at least $10 can also invest in some top private AI companies through platforms like Fundrise. That’s what I’m doing this summer.
I'm taking a barbell approach — investing in tech and private AI on one end and taking advantage of higher risk-free rates on the other. Once again, the ability to participate in capital appreciation and earn more passive income feels like a win-win.
Just in Time for Summer
If you’re feeling burned out from work, you’re not alone. I don’t even have a traditional job with back-to-back meetings or an insecure boss breathing down my neck and I’m feeling kinda burned out too.
This feeling seems to be supported by recent surveys showing more workers no longer want to climb the corporate ladder. Instead, they’re choosing to stay put or even intentionally descend — doing less work for less pay, but gaining more freedom and peace of mind.
In retrospect, if I had been content staying a Director in banking, I might have extended my career by at least five years and maybe ended up wealthier. But my ego and pride wouldn’t allow stagnation, so I took the drastic step and engineered my layoff. That “all or nothing” approach worked for me, but it’s not the only path to a better life.
So if you're itching to quit your job, read this first: Descending The Corporate Ladder May Be Key To A Better Life
Last Week in San Francisco
The last day of school is this Thursday for my kids, and then we’re off to Honolulu for five weeks starting Sunday. If you live in Honolulu and play tennis, pickleball, or golf, I’d love to connect!
One of my goals this summer is to explore whether I’d be happy moving back once my son enters high school in 2030. Can we mainlanders really assimilate and feel welcome?
The other goal? To get fit again. I’m a 4.5-rated tennis and pickleball player and once had a 9.8 golf handicap before kids. Now I’m probably around a 15. So if you’re looking for a fourth, I promise I won’t slow you down! We’ll be staying in Kaimuki.
Oh, and I’m looking forward to speaking with the last of you this week as part of my Millionaire Milestones consulting promotion. For those with a net worth under $1 million in a non-coastal city, or under $2 million in a coastal city, stay tuned — I’ll be launching a new promotion in August.
To Your Financial Freedom,
Sam
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