Enjoy your life, no matter the economic situation. If you do, then you'll always be winning. The key is to recognize reality and take appropriate action.
The Fed hiked another another 0.25% on March 23, 2023 to 4.75% – 5%. Despite multiple consecutive lower-than-expected monthly CPI numbers, a blowing up of regional banks and Credit Suisse, the Fed indicated it will hike to a terminal rate of 5.25% or thereabouts. Most investors were hoping the Fed would stop at 5%.
Meanwhile, the 10-year bond yield is only at 3.5%, meaning there is a huge yield curve inversion. It's the largest inversion in over 40 years. The bond market is screaming for the Fed to stop hiking, but it just won't listen. Even with the bank run at Silicon Valley Bank, the Fed won't stop.
As a result, the United States will likely go into a recession again in 2023 thanks to the Fed's overly aggressive tightening. Over a million people will lose their jobs, banks will go bust, and trillions of wealth will evaporate. Instead of expecting inflation in 2023, we should start worrying about deflation again.
All the good done by governments to support billions of people during the pandemic will have been for nothing. Can you imagine struggling through a pandemic for three years, finally coming up for air only to be run over by a speedboat driven by a rich central banker?
When you are worth ~$100 million, as Fed Chair Jerome Powell most certainly is, you may not care as much about the middle class as you do about your legacy. Instead, you want the history books to emphasize how you were tough on inflation and gloss over the human suffering caused by your decisions.
The Fed Is Turning Into The Enemy
What Jerome Powell, Neel Kashkari, and other central bankers fail to realize is they are quickly turning into public enemy #1. You can't say things like, “We are seeing almost no evidence that underlying inflation is coming down,” when real-time evidence says otherwise.
In the beginning, the rich and mass affluent class will object to an overly aggressive Fed as they see their investments lose value. But nobody cares how the rich feel. The key is the middle class.
Mass layoffs always come after stocks collapse. The average person can stomach paying higher food prices. But they have a tougher time accepting being laid off while their central bankers are still gainfully employed and worth eight and nine figures.
Smart employees will get ahead of the curve and try to negotiate a severance before mass layoffs begin. After all, the first people to get laid off tend to have the best severance packages. Further, the sooner you get a severance, the sooner you can get in line to do something new.
The Fed Is Toying With Us
Let's imagine Fed governors are sipping cognac and eating caviar on a balcony at Jerome's mega-mansion. After all, they sold before the bear market began.
They're having a merry good time while looking down upon us peasants. Jerome nudges Lael who nudges Michael who nudges Neel to play “Hoops.”
Jerome says, “Whoever can throw an hors d'oeuvre into one of the beggars' bowls below gets a point! Everybody else has to take a shot of XO. First to five points wins!” Everybody cackles and cheers with glee.
Please don't depend on politicians or central bankers to help you. They spent and cut way too much in 2020 and 2021, and now they are going to constrict and hike way too much now. To enjoy your life, you must look out for yourself!
How To Enjoy Your Life During A Global Recession
I used to think the Fed would pivot before getting to 5% on the Fed Funds rate. At the very least, the Fed would acknowledge the signs of moderating inflation by year-end 2022. The signs are obvious, especially after the latest Series I Bond rate offer declined by 2.7%.
But after the December 2022 Fed meeting, the Fed is now determined to tank the economy.
Therefore, it's worth thinking about what you would do in terrible times so you can be better prepared. On the off chance an unfortunate situation occurs, you won't be surprised.
This is typical premortem planning. You write out the three things to do in case of a car accident so that if you do get into one, you know what to do. The shock doesn't completely override your brain.
The main thing you must decide during a global recession is whether to work harder or enjoy life more. You might want to work harder to increase your chances of keeping your job. Or you might want to coast because the return on your effort is no longer there. I believe the latter is the wiser move.
Here are my thoughts on how to enjoy life more in a situation of imprudent monetary policy according to the U.N. Given it will be much harder to make money in 2023, it's best to enjoy life more!
1) Quiet Quit Harder And Be A Middle-50% Performer
Although a global recession sounds scary, usually only the bottom 10 percent of performers are let go. But the media will amplify the doom and gloom stories of those being laid off. As a result, you may feel more at risk than you actually are.
In October 2009, the unemployment rate peaked at about 10 percent. It has since steadily fallen to about 3.5 percent today. Worst case, the unemployment rate could surge back to 10 percent by 2024.
You don't have to outrun a bear. You just need to outrun the slowest person in the crowd.
Hence, do enough at work to be in the middle 40 – 60 percent of performers. If you want to really take a gamble, you can try to be in the 11 – 20 percent of performers. But I don't recommend it. Those who work only 40 hours a week or less and complain why they can't get ahead are most at risk.
During a global recession your return on effort is low. Therefore, the logical move is to work less since performance isn't rewarded. You could bust your ass working 60 hours a week only to get paid less. Be careful of making the second biggest financial mistake and feel entitled to always make more. During a Fed-induced crisis, your company's share price is likely to lose value.
Quiet quit harder. Ask to work from home more. Take longer lunch breaks. Leave earlier to pick up your kids from school. Refuse to travel when Zoom meetings will suffice.
The name of the game is to focus on more important or fun things while you wait out the recession. If you really want to do something new, try and negotiate a severance and explore the world.
The opportunity cost of not working during a recession is much lower. Conversely, when the economy is going gangbusters, you want to try and capture as much financial upside as possible.
Just make sure you're not too obvious about taking things easier!
How I plan to enjoy life more if the recession gets worse:
Given I don't have a day job, I can't get fired from one. But I can do things to simplify life.
The first thing I will do is cut my posting frequency down from three to two a week. Then I will reduce my weekly newsletter to once every two weeks. I'll might drop my podcasting to twice a month, although podcasting is fun and easy.
The frequencies should still be enough to keep readers, listeners, and myself engaged. But it will help reduce self-imposed pressure as I return to re-retirement. I told myself I would publish three times a week for 10 years starting in July 2009. So I already achieved my goal long in 2019 and just kept going.
Online revenue is a nice bonus. But if the economy really starts to tank, then I should probably maintain my online income buffer. Here are thoughts on making money online since 2009.
Another thing I might do is shut off the comments section completely for a while. Even though it's always interesting to read different perspectives, there is a ton of spam I have to wade through every day. Then there are the occasional hateful comments or irrelevant comments. Shutting down comments saves time and reduces stress.
Complete Big Goals
Finally, what helped get me through the first two years of the pandemic was writing Buy This, Not That. Having a big goal to accomplish was a defiant way of not letting a terrible situation defeat me. Hence, if bad times are here for another 12-18 months, I could write another book to keep me busy.
You don't get rich writing a book. But you do stay occupied and have a triumphant reward once it's published. Financial Samurai was born out of the global financial crisis. It's always nice to make lemonade during difficult times.
Heck, I may even get into the best shape of my life! Nah.
2) Spend More Time With Family
For those with children, one of the best things to have come out of the pandemic was the ability to spend more time at home with your children. Plenty of adult children moved back in with their parents as well.
From all the feedback I've gotten since 2020, nobody has told me they regret spending more time with their parents, siblings, or kids. Instead, the regrets come from those who didn't take advantage of the situation to relocate closer to parents or adult children.
Even though 2020 and 2021 were difficult times, I will always appreciate our family's local outings. We went on so many great nature walks. Homeschooling accelerated learning and provided for better accommodations. I also learned to be a better parent.
Once you have a basic amount of financial security… money, career, and status are unimportant when compared to family.
How I plan to enjoy life more if the recession gets worse:
If I reduce my Financial Samurai work from 20 hours a week to 15 hours a week, I will dedicate 70% of the free time to my kids.
My daughter turns three in December 2022, which means it'll be go time for me to be more present. Three is when memories really begin to stick. It was also the age my son consistently began to warm up to me. I'm hoping the same will happen with my daughter.
It's easy to put everything you've got into your first child and slowly not spend as much time with every subsequent child. I'm sure I haven't spent as much time with my daughter as I did my son at the same age. Therefore, I plan to course correct.
My biggest goals are to teach my kids how to ride a bike, scooter, and swim. At six years old, I remember the moment when I realized I was riding my bike on my own without anybody pushing me. Magical! I can't wait for my kids to experience the same thing.
A deepening global recession will help improve our family relationships because it will reduce the temptation to spend time making money. The problem with money is there is an endless amount of money to make. It's often hard to quit even if you have enough.
3) Make Better Friends Or Find New Love
If you find new love, the sting of losing so much money in a global recession will fade away. Remember the feeling of meeting someone you like for the first time? So wonderful!
If you've already found the love of your life, work on improving existing or new friendships. If misery loves company, then building better relationships during a financial crisis should be easier.
You don't have to be lonely if you don't want to. Make the effort!
How I plan to enjoy life more if the recession gets worse:
Given I already have my wife, I'm good to go on the life partner front. However, it would be nice to have another close friend or two.
I tried softball, but the demographic was a little off (most were much younger than me). Tennis is the easiest avenue since I play for a couple of league teams. I'm also playing a lot more Pickleball now, which has opened up a new community of cool friends.
The next way to find adult friends is through fellow parents at my son's school. The trick is giving my son time to find consistent friends and then arranging playdates with their parents. I also went to another kindergarten dad's night at Spin the other other night, a ping pong bar. Very fun.
Ideally, our families get along so well that we go on family vacations together. Finding such relationships takes effort, which is why we're committed to going to every school-related event.
4) Travel More To Enjoy Life
A good thing about a global recession is declining flight and hotel prices. With the pandemic winding down, there's no time like now to travel everywhere. If you are earning U.S. dollars, it is at its strongest level in decades, making international travel even more affordable.
Given it's tough to make money at work or with your business, you might as well take all your vacation days to see the world. Go see the ancient temples in Angkor Wat, Cambodia. Visit the pyramids in Egypt. Travel to Paris for the French Open. You won't regret it!
When you travel internationally, time seems to stand still. All the stress and responsibility back home seems to melt away. Back before we had kids, I dreamt of being a travel blogger. It was one of my favorite ways to enjoy life.
How I plan to enjoy life more if the recession gets worse:
For the summer vacation of 2023, we may travel to Taiwan. Taiwan, like many other Asian countries, has finally dropped its quarantine policy for international travelers. No more do we have to isolate in a hotel room for one-to-two weeks.
Taiwan is an affordable country with friendly people and fantastic food. I think it would be a great experience for our kids to learn more Mandarin. I grew up there from first to fourth grade and have fond memories.
The great thing about traveling in June 2023 is that my kids should be old enough to remember. They will be 6.5 and 3.5. What a shame to travel to a faraway place only to not remember. The best time to travel abroad with kids is after they turn five.
Living Abroad During Grade School
I also have this grand plan of living in various cities for years at a time until our kids hit high school. I grew up in Manila, Lusaka, Kobe, Taipei, and Kuala Lumpur until the eighth grade and loved the experiences. But it was gut-wrenching to leave my friends behind in middle school.
Hence, we would probably stay in one place from seventh grade until high school graduation. We have the ability to live anywhere. The question is whether we will have the motivation to live exciting lives.
Here's a picture of reader Steve with best-seller Buy This, Not That at Lake Atitlán in Guatemala. His career enables him to live abroad and help countries develop. What a fantastic combo!
Reading more great books during a global recession is one of my absolute favorite activities.
Thank The Fed For Gaining Back Your Life
Without going through the global financial crisis, I wouldn't have started Financial Samurai. I would probably still be working at my boring job with a lot more stress and health problems today. If that was the case, I'm sure I would be constantly wondering whether there was more to life.
But instead, the global financial crisis pushed me to change. It spurred me to finally propose to my girlfriend, start this site, and figure a way out through a severance negotiation. Despite having less money, I was happier due to having more freedom.
So let's look forward to a Fed-induced economic meltdown! It will finally spur us to do things we've been putting off for too long. Because once the water of money recedes, you're left focusing on what's most important.
Related: The Upside Once The Fed Destroys The Middle Class
How Do You Plan To Enjoy Life More?
Readers, how do you plan to enjoy life more after the Fed ruins the world? Besides loading up on short-term Treasury bonds to make more passive income, all ideas welcome! Does a global financial recession reduce your temptation to make money? Or are you working harder to try and not lose as much money?
To gain an unfair competitive advantage in building wealth, read Buy This, Not That. It was written exactly for volatile times like these. I synthesize my 27+ years of investing experience to help you make better financial and life decisions.
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Read Creature From Jekyll Island if you think they’re just now turning on the people. This is in the Fed’s design. G
Sam, what are your thoughts of risk vs. return. If you can receive 4.5% from Treasury bonds/bills what level of return would you need to see/expect from Real Estate or Stocks to invest new money? I’m thinking at least 4% and 8% respectively more than the risk free rate, which I don’t see happening in 2023. Even with this good start to the year. I personally think the best place currently for new money is short term treasury bills.
I would expect 8 to 12% returns for stocks and real estate before buying. Hence, things feel highly uncertain now with risk assets.
You can get a one year treasury bond for 4.7%. To me, that’s a Home run no-brainer given I’m just looking for conservative returns as a fake retiree.
The Fed needs to redefine an acceptable inflation rate from the 2% that Powell quotes all the time to something more reasonable, post-Covid. I have a feeling that years from now the Fed will look back and say that 2% was not achievable and will have to accept something of a higher rate (maybe 3%-4%).
Sam, you sound just like Cathy Wood. I am not too sure about the call for deflation right now. It is simply too early to know that. We still have a very low unemployment rate, which will probably go above 4.5% before a real recession hits, so long way to go. I also don’t think 12.5bps (terminal rate of 5.125% vs. 5%) will really make that big a difference at the end of the day.
Sam,
Can you please help me understand the mechanism behind your statement that “Mass layoffs always come after stocks collapse” please?
Aren’t these companies still profitable despite collapse of stock prices? If so, why the lay offs?
Thank you so much!
Sure. Executives are largely compensated with stock options. They have the incentive to keep the share price as high as possible. When the stock price collapse, executives and shareholders want to take action. One action is to cut costs and get rid of excess employment fat. Do more with less people = increase productivity.
Executives have to show shareholders they are doing something to support the share price. Laying people off is one of the most straightforward ways to cut costs. Otherwise, management tends to get fired.
Thank you so much for this explanation. It makes sense.
So does this strategy of “mass layoffs” usually work to raise the share price? To play devil’s advocate, couldn’t retail investors view the mass layoffs as a sign of an unhealthy company?
Yes. Only time will tell. But doing nothing to cut costs when revenue is down or coming down would make investors bail.
LOL, I spit out my coffee when I read the line about the speedboat. That sure paints a picture. What a circus! Thanks for the article and sentiments I agree with you 100%. We often do these things to ourselves just sad a bunch of out of touch people have so much influence.
It is impressive how one man has the ability to create or destroy trillions in wealth and create or destroy millions in jobs. Maybe we shouldn’t let one man have so much power.
In the mean time, let’s not fight the Fed!
Your meaning of life philosophy (i.e. how you spend your time day to day) shouldn’t depend on the Fed funds rate. If it does, you’re a slave.
Easier said, for people who are already rich. But for people who depend on a job to survive and take care of their family, getting a huge pay, cut and losing their jobs could be a very big problem.
Hi Sam
Merry XMAS and Happy new year to you and your loved ones. I am a big fan of yours for many years. Thanks to you, your posts, podcast and newsletter, i learn a tons and i was able to make many right decision. I totally rhythm with your saying “Once you have a basic amount of financial security… money, career, and status are unimportant when compared to family.” It is so true, at least to you and me. Keep on your good work, you make a difference to many people!!!
Nice to hear from you and thank you! Merry Christmas and happy holidays to you as well.
Thanks for your support and sharing my work.
新年快！
I totally agree that working more during a bear market makes no sense. The returns are terrible. I’m sitting in traffic at 4:45 PM. Picking up my son, and the traffic is ridiculous. I can’t believe there are so many people going into the office and commuting, when the economy is tanking. I feel foolish.
It’s better to just wait things out and relax during a bear market. Go travel and see the world. Spend time with family. So much better.
In a beer market, the returns are drinkable – so totally worth working harder for.
Hi Sam,
I’m gonna finally pull the trigger for a Masterbath remodel and adding a new bath to make a guest ensuit. Why remodel this during a recession? I’m just hoping for less competitive prices for both labor and materials. Also to enjoy the new masterbath ourselves, and host family/friends in the new guest ensuite as soon as possible.
We plan to stay a frugal with everything else, maybe even travel, unless there are very good deals. One reason is that we travel a lot for work already.
Wonderful! Although the remodeling process is painful, the joy, after it is all done is always worth it. And the returns last for decades. Good luck!
Related: how much to spend remodeling
Why remodeled homes will sell for premium prices going forward
Where do you travel for work?
Thanks Sam. The process is hell hence the procrastination! But 2023 is the year before inflation increases the price further. The earlier done the longer enjoyment~
I travel to South Asia and Europe for work. I try to combine mini sightseeing whenever I go, especially when I have to spend the weekend there.
I have a line of credit agreement with a 100k balance. I opened it a few years an ago with my broker and paid less than 2% interest. I used it for all kinds of things – redoing my roof, replacing all my windows, and investing in higher dividend paying stocks. Now that interest on it is 7%, I will be paying it down in 2023. By the end of 2023 it will be paid off, but it looks like Powell will still be increasing rates.
Yeah, at 7%, paying it down/off should be a focus.
A few questions and comments:
How much do the FED open market operations actually influence market ups and downs? For example one of the reasons we didn’t have a large decline in stock market during Covid when everything was “going to hell” was because the FED was pumping trillions of dollars into buying stocks right?
Now that the FED wants to unwind their balance sheet isn’t that a reason why the market is dropping because the FED is selling? Honestly asking these questions because I don’t understand it that well. Related and relevant questions are what percentage of daily or monthly volume is due to the FED, or estimated due to FED? Is that something that you can track or shed light on Sam?
Lastly my view is that the FED overcorrected by pumping up the market too much when things were actually doing pretty bad. Instead a correction would have been normal and healthy and would have naturally helped to tame inflation. Now to your point they are probably overcorrecting a fair amount..
Appreciate your insights and data on questions above Sam!
Well stated! I am not in favor of cheating one’s employer by loafing about, if you are accustomed to giving 110% and are only getting 90% in return, a little re-balancing is not inappropriate.
More importantly, though, excepting in dire circumstances such as grave illness or natural disasters, ‘happiness’ or well-being cannot be contingent on circumstances.
Today is the only today you get. Same for tomorrow. Might as well be happy. You have a choice.
I retired four years ago at age 53 after 30 years of owning/growing and then selling a successful education company.
I was/am committed to enjoying my retirement as long as the years I worked and have thus far loved every single day of it.
The key for me is to divide my time equally between Faith, Family, Finances,Friends and Fitness .
If any one of these areas is severely lacking I rebalance my life to be strong in all five.
I will never spend all of the money I have made and am so happy to have had an amazing 30 year run. Often times I feel as if I do not deserve the life I have and remain eternally grateful.
I learned a long time ago not to count on anyone or anything to come through for you. No one will meet you half way. Often times when you are on top of the mountain in this world half the people will try to push you off and the other half are on the bottom telling you to jump. Be extremely careful with your money and do not trust anyone. None of the financial advisors in my opinion own the garbage they are always trying to sell you on. If you loose everything in the stock market, or other seemingly “solid” financial investments do not be surprised, it has happened many times before throughout history. Be very careful of any debt because it is all structured to eventually crush you. Many years ago I began investing in high end single family residential homes with little to no debt. I knew that no matter what people would always need a place to live. This strategy has served me well. If and when America collapses as it very well might, have an exit strategy until things possibly settle down. The best scenario would be if China and Russia slowly break apart and the US leads the world again by example. Possible, but highly unlikely. Good luck and God Bless everyone.
With the caveat that I am not good at predicting the future, I suspect we’ve entered a new financial era. Higher interest rates, higher inflation (at least higher than the 2% we’ve growth used to), higher cost of capital, less venture funding (crowded out by higher returns on lower risk investments), and perhaps more volatility. I’m not sure it will necessarily be a return to the 1970’s but it is likely going to be different than what we’re used to since 2008.
This new environment will create a new set of risks and opportunities.
Articles like this really help us think through what it might be like so we can make good decisions with our money. Thanks Sam, I enjoyed the read!
Another great article putting things into perspective! This has to be the quote of the year: “You don’t have to outrun a bear. You just need to outrun the slowest person in the crowd.” LOL
I don’t believe it’s any sort of organized conspiracy. But it sometimes pays to pretend it is. For example: I pretend there is an Illuminati of the ultra-rich who periodically say to themselves, “Too much money is getting stuck in the middle, we need to free that up so we can move it where it belongs.”
Then they tank the markets with the full knowledge that a lot of less well-off folks will inevitably panic at losing what little they have (at least by comparison) and panic sell, locking in their losses, no matter how much they have been told not to do that. There will also be those unfortunates that know better than to sell, but won’t have much choice.
The conspiracists then swoop in and pick up what they want for a song and, when they decide it’s time, they permit a recovery. Mission accomplished! They have successfully transferred large sums of wealth, that had gotten clotted up in the middle, back to where it belongs, the people who make all good things possible and will use that wealth wisely, to do things like create jobs for the little people and to buy bigger yachts and better private jets (because that also creates jobs).
Again, I don’t believe this conspiracy really exists. But it helps to avoid being a victim of circumstance (or hidden Illuminati) if you act as if it does, because the net result is kind of the same.
I have mixed emotions about this post Sam. Because it was the Fed that provided a generational opportunity for the middle class to get rich, if they paid attention. It was only the Fed that allowed for so many marginal companies like a ROKU for instance to go from 80-500 in 18 months, or a horrible company like UPST to go from 17-401. Think about that! Think about the gift of wealth that was given to all (including the middle class) because of loose FED policy, not great businesses. If you didn’t take advantage of that – opportunities for middle class people in their 20s to 60s to basically set themselves up for life – well…
And then on the other side, Powell couldn’t have signaled more clearly his plan at the end of 2022. Those market actions never come without a price. You/we/they had every opp to preserve massive gains and step to the sidelines. If you didn’t, well…
I am hearing too many people act “caught” as if they had no chance to get out or re-organize their wealth. Couldn’t be farther from the truth. This has been about the most communicative fed in history. Never fight it – the mistake is people think it might be different this time. Just need to pay attention and have a small amount of knowledge about economics!
Andy by the way, we are reaching some incredible entry on equities right now. Personal favorites are MSFT and CRWD.
All good points. I think most people who’ve read Financial Samurai for years will be fine. But the vast majority are not as focused on their finances as we are.
I just don’t want the Fed to over-tighten and cause another 2008 Global Financial Crisis, which will result in massive unemployment and ruined lines.
As for me, I’m already unemployed. So getting more unemployed doesn’t matter. How about you?
I’m pretty set – quiet quitting as I finish my last few years in a partnership and transfer equity stake. Plenty of cash/fixed income to weather multi-year storm.
And just FYI, my son is graduating spring 2023 with a BA in CIT from the business school of a not top of the end college in VA, with a not top of the line GPA, and already has a job offer from a big 5 firm (Deloitte) starting with a salary more than I made until my 40s and a 10k signing bonus. So take heart, those who know about economy and how to run a successful business must not be too worried about what lies ahead.
Congrats to him! Sounds like Computer Info Tech (I had to look it up) is in high demand. Not easy to get a job offer from the likes of Deloitte. I remember getting rejected by all of them when I graduated from W&M in 1999.
Just bot a 5 year CD in my IRA yielding 5%! Risk free money at 5%. Life is good.
So after reading FS for a number of years and listening to the advice, ill leave a comment yet again.
How do we plan on enjoying life more after the fed ruins the world? Well, doubt the world will be ruined but definitely will be stuck on the “this sucks” cycle for a bit. We bought braces for our daughter, we paid for a trip to Kauai in 2023 including airline tickets. We are on a 10 FRM at 2.45 and paying that down. House paid for in 30-36 months. No other debt. Investing 5 digits per month in equities.
The suck cycle will eventually return to market averages. Looking at historical data the 5 years after a recession the average return is over 20%. So we continue to invest, don’t do anything too stupid and enjoy each morning.
The money we make we are putting to use long term. I am currently studying for series 65 license for a transition once I separate from my 3 decades in gubment service. Ha! I will be working part time while still working full time gig with big brothers permission. So this recession is incentive to make more and put it to work.
Extra cash will be for real estate, equities and some travel to Hawaii again.
Reading BTNT was some extra incentive to do the series 65 . Website always has some nuggets. Love reading old posts and comments.
Keep up the great work esteemed Financial Samurai!
Love it! Thanks for sharing. If we keep living our lives then we keep on winning.
Sam love your practical advice as usual especially about “Quiet Quitting Harder”. It reminded me of one of your old articles when you wrote about the art of sandbagging. So many people get burned out or frustrated at work because they don’t know how to make the necessary adjustment to even the playing field.
Keep up the great work and congrats on your book!
Hi Sam – please don’t publish this post publicly. I just wanted to send you my story and give you some positive feedback here. Very appreciative for everything you do.
I’m 31 and located in Southern California. I’ve been following your blog for about 8 years now. I’ve never commented before but felt like I should give some positive feedback here.
I’m a mixed-race hapa. I work in commercial RE finance specializing in multifamily, stabilized and construction. I make a good income from my work but have really exceeded the financial goals I set for myself, in my early 20s, because I not only saved aggressively but invested in equities. From Apple to Tesla, I know how lucky I’ve been. Extremely lucky. While I have certainly seen a drop in my brokerage and retirement accounts this year, I am still riding high from my 2014-2019 cost basis for many of my investments. Additionally, I sold off a significant portion of my gains in 2021 and bought my current home. It’s an SFR with 3 beds/3 baths and 3 blocks from the beach and within a walkable 1-mile of a touristy downtown (not in a flood zone either and we have earthquake insurance). My 30 year fixed is 2.75% and because of its corner NE orientation, we have never had to use the HVAC. I’m very content with these golden handcuffs.
I’ll add that I attended a CalState, graduated late, but worked fulltime the entire time I was in school. I graduated with no debt because I paid my way through while living on my own in a rent controlled apartment. I grew up below the poverty line as well. I didn’t even have health or dental insurance until I was 18 and started working. Looking back, there were government programs that could of helped as a kid but my single-parent household didn’t know about them and spoke limited English.
So, my point with the above is that I didn’t have much in the way of real financial literacy as an individual or from my family (let’s not even mention school). This blog helped broaden my perspectives and see behind the curtain on how the well-to-do and investor classes see the world as well as financial products that I would of never known about earlier. I attribute a lot of my success to this blog and the real world anecdotes you have shared.
It gave me the confidence to learn more, it guided my career interests, and it most importantly clued me into some of the best decisions I’ve made financially: upgrading to an SFR in 2021 with low rates, buying tech equities starting in 2014, having sound insurance/net worth/and retirement planning…
I’ve done very well. I certainly cannot retire yet but having gone from having nothing to a net worth exceeding 6 figures, I am just very thankful for this blog. Lastly, this blog shares lifestyle advice that is so important, too. My husband is a tech product manager and he is a dedicated reader of FS. The importance of finding and being a good partner, of giving back to your communities, and just recognizing that wealth includes health and family, too, has been very helpful.
Headed into 2023, I plan on taking a step back from work myself. We are currently looking into fostering to adopt and big brother mentoring programs. Recessions are unavoidable. Even if my investments continue to decline this year and next, I have a home I love and finances that should see me through the storm. I might not be wealthy when I come out the other end of it… but the journey you’ve helped me take so far has afforded me my home and my family’s security. So, I’ll be fine.
Please don’t let the negative jerks on here bring you down! People like me rely on you for advice.
J,
Thanks for your comment! So wonderful to hear you are doing great and have made awesome progress in your finances and in your life.
Your story means a lot to me. It gives me the motivation to continue! I hope you do become a mentor and foster parent. So many kids need and deserve love. I know you will do great because you’ve come from a difficult place, have a great attitude, and appreciate what you have no. GO YOU!
And I will tell you a secret. “Negative jerks” sometimes bring me down. But most of the time, they just refill my tank.
Best to you!
FS… I was going to comment a certain way initially as your questions I thought were great, along with your post (per usual). However after reading through all of these other comments my answer is shifting slightly…
1. Please don’t shut off the comment section. I realize there is likely a task involved that we don’t understand, but this post alone has generated unlimited value. The pros, and cons and in some cases almost comedic responses have been amazing. In all of these I always hear your message about these FREE articles, and FREE advice. Yet, people get jealous or mad about it. Perhaps you should offer a 50% discount on the FREE topics and see if they take them better.
2. Your articles and comments have been invaluable to me, and with each post read I feel myself thinking about things in a different way, so I for one am grateful for your efforts. Hopefully, you can keep up the good fight and keep the energy going even in a down turn. Understandable if not, as you have already hit your goal 3 times over. But hopefully, you’ve got another few “rounds” in you…
3. I have been trying to balance working and what I get out of it lately. Your previous post about status coupled with this one does make one think about the why’s of effort. My wife and I are each relatively highly paid, and in senior level positions. Sometimes, we take it for granted as we both have extremely flexible work. However, we are also both very type A, and find it hard to let go. I recently took on an executive coach to help me in my mindset, and to ensure I’m using energy wisely. One of of the best items of advice I’ve received from him so far, is that highly motivated people always get more work and yet, if the company name isn’t your own the work is just that. So, I have been thinking about all those extra hours I’ve put in and all the problems I’ve solved over the years. Sometimes there have been pay outs for it, and other times it just raises the bar and expectation to keep the grind going. I’m starting to get that feeling that it’s no longer worth it, yet, I haven’t hit my number so I push on. Though, I’m starting to grow tired of the games. I’m on too many committees and boards and advisory panels and such for the industry and sometimes I think what’s the point other than job security.
Anyway, to answer your questions…
Despite the hits to the overall net worth, I intend to keep focusing on enjoying life with my family and friends…
I surprised my wife this summer with a birthday trip to Positano. I secretly got a few of our college and post college friends from around the world to meet in Italy for a 10 day trip. She was completely blown away as we were able to keep it a surprise for 5 months. I coordinated the trip so we all landed in Naples at the same time, which was no small task, as people flew in from London, DC, NY and Boston for the trip. I had hired a car service that took us to a mountain top villa overlooking Positano. It was an epic trip full of adventure with great friends.
I’ve decided I’m no longer going to miss my kids sporting events no matter what. I have been rescheduling meetings, and putting in block out slots in my calendar to ensure it. I’ve recently skipped board meetings, and conference events to ensure I could see them play. And, I have no regrets. There is something so special about seeing kids have fun at play. I have even surprised them recently going to games and practices they didn’t think I would make.
I just finished a large reno on my house. We finished the basement: added a weight room, bar, bathroom, and entertainment area. I also finished the attic and added a spare bedroom and bathroom and a movie room. So, my plans are to start enjoying those more and entertaining more. I have been inviting my kids friends and parents over to enjoy the space, and to make new relationships. The added entertainment space has been great so far. So far we have got along great with the other parents and have started spending time with them sans kids as well.
This past weekend I had friends fly in from out of town to stay at the house and we went to a football game. I hired a limo to take us so everyone could enjoy the game and not worry about driving and I took care of all the food and drinks for the weekend. It was a great time overall. So many laughs, and in the end I wasn’t thinking about the bank account, just the memories being made.
All in all, I’m reminded of Ferris Bueller in all of this, and his quote, “Life moves pretty fast. If you don’t stop and look around once in a while, you could miss it”
Incredible comment! Thank you for sharing.
“ highly motivated people always get more work and yet, if the company name isn’t your own the work is just that”
This is very insightful because I felt the same way. Even if I got promoted to managing Director at my old firm, the Mundane wouldn’t have ended. I probably would’ve felt proud for three months and then it was back to the same old stuff.
When you on the majority of the firm or all of the firm, things feel different. You are more motivated and you feel more proud of the work you do. It’s completely rational.
I love that you’re surprised your wife with a great trip and are spending your money on wonderful experiences. Well done!
Irish247 – you’re insights and the advice I was able to glean is a good example why I enjoys the comments as well. Thanks for sharing.
you guys think a 4.5% rate is high? you are kidding right?
Not for people with lots of cash. It’s great to be able to buy Treasuries yielding a risk-free 4.5% for years. Passive income going up!
The question will be how long the fed funds rate will stay at 4.5% as inflation on the stock market crashes. As a retiree, I’m focused on cash flow.
I could never do what you you did working that long in investment banking, an absolutely soul sucking meat grinder of an occupation. No wonder you plotted an escape – good for you.
I’ve been in technology sales since the dot com bubble and it has been an incredible ride, one where I’ve rarely worked 40 hours a week, let alone the hours you had to put in. Being in Silicon Valley I see and know lots of very successful people, from friends met throgh kids to friends I’ve made at my golf club and customers, and the one common element with the most successful people is they are still working. Some of them are very competitive golf and tennis players yet once you’re in the big leagues in technology there is a rush that’s hard to replicate.
A few questions as I am a first time poser:
1. Why do you live in SF with kids? So many nicer parts of the Bay area to reside with great preschools that aren’t social status proxies.
2. Do you think your passive income real estate investing strategy is going to be impossible to replicate moving forward as the Fed seems determined to punish the mis-allocation of capital to real estate over the prior 2 decades?
3. Don’t you think Quiet Quitting has deleterious psychological effects for most people with a brain that likes intellectual competition?
Finance is super boring and requires lots of hours, but sales is pretty easy if you have the personality and can learn how to create value.
Keep up the great work on this blog.
It’s great you have found an occupation that provides meaning to you, that you enjoy. What kind of tech do you sell?
I did enjoy Finance for about 10 years, then it got boring because it was the same old thing and then the market collapsed in 2008. I really wanted to focus on doing something that was more helpful.
1 What other places do you recommend in the Bay Area to raise kids that are better than Sam Francisco? Where do you live?
2 I think real estate is going to be an even greater demand once the correction is over. People losing so much money in Stocks now is a great reminder of how much more stable and sticky real estate and real estate rents are.
3) No. I think they provide positive effects because people can improve their mental health and focus on doing things they enjoy.
A great thing about life is that we do things we enjoy and stop doing things we don’t. Everything is long term rational.
Thanks for the response.
Background is in software, spent most of my career in silicon but am now back in software and loving it.
You know the good areas – Piedmont or LaMorInda if you wnat EB, Peninsula down to South Bay if that better suits you. Bay Area outside SF/OAK has the best public schools in the state. Our local South Bay high school is an ideal 50/50 asian/caucasian mix with the elementary/middle/high schools all within walking distance. Friday Night Lights, the whole bit.
Your real estate strategy worked because of cheap credit, which is a thing of the past. We are entering an era of permanently elevated inflation driven at its core by onshoring – having spent a few years very intimately involved with billion $ levels of hardware mfg I can tell you there is NO China substitue for mfg – endless supply of migrant labor that is conditioned to work as hard as they can to please mgt and they always work the OT. Try getting that level of productivity out of a factory anywhere else, not to mention losing the benefit of the world’s supply chain in the Pearl River Delta…inflation and high rates are here to stay for a while. I also feel the Fed is signaling hard their intent to crush the speculative and income real estate sectors and force dollars back into Treasuries and equities, and force people back into the labor market to boost labor force participation rate. Killing these 2 markets with expensive debt and no govt backstops will restore traditonal pricing signals and, ther Fed hopes, drive down rents by making income real estate investing unprofitable at current valuations. I see the 30 yr hitting 9% next year and staying elevated for the rest of the decade.
I don’t think Quiet Quitting generates a positive mindset for people working now – if anything it likely creates more stress. My sector (cloud software) is booming and I am super excited for what the next 10 years until I plan to retire holds.
Glad you find software sales to be very meaningful. I’ve had the exact opposite feedback from people in software sales who told me they quit because there was no meaning to their software sales jobs. They told me that when they look back on their lives, they won’t feel good trying to hit monthly quotas to sell software for productivity management or whatever.
So that just goes to show you how lucky you are to enjoy what you do and that everybody has different feelings about their occupations. We have to decide what moves us and change if we don’t like what we do. I disliked my banking job after 10 years, so I planned my escape. But some people I used to work with in 2012 are now on their 20th or 30th year. Incredible!
I really enjoy the beauty and diversity of San Francisco. I think there’s a high correlation of satisfaction between whether you can comfortably afford to live somewhere or not. And people will rationally be supportive of where they live, especially if they move. The more expensive a city, the more people will dislike it. It’s just the way it is.
Do you expect rents to go down in an inflationary environment? Because so far, I have not seen this at all. Rents tend to follow inflation. But of course, double digit rent increases cannot last.
Higher interest rates are also great for retirees. I am thankful to be able to earn a 4.4% risk free return on Treasuries. Check out my post on buying Treasures. $44,000 in risk-free income without having to pay state taxes on a $1 million investment is pretty nice. Just last year, we could only get $15,000 a year in risk-free income. As a result, there is no need to work as hard if you have the capital.
I’m super happy about my private real estate and physical rental properties. They are doing phenomenally well in the spare market. Rents continue to go up and I wish I had even more real estate. So I will be waiting for some opportunities to buy real estate over the next 18 to 24 months.
Yeah, the outperformance has been incredible so far in 2022. Returns will fade, but 2022 is another reminder why I prefer investing in real estate over stocks, especially as a retiree. I’m glad I invested congruently with my beliefs. I hope everyone does!
I have to chime in and agree with Sam/FS that if anything, MORE people will want to be in RE rather than equities if OC2SV’s belief of 9% mortgage rates for the next decade and high inflation hold true…Look at the NASDAQ/SP500 crushed ~30%/25% already and more downside likely until the inflation peaks..and I think it will peak much sooner than later as soon as the Russian war finally ends. We already see heavy deflation in used cars, airfare, big sales at Walmart/Target, rents coming down actually in many metros and that is the biggest CPI factor..gasoline should soon follow.
Side note, I have never as well seen anybody enjoy software/tech sales in general: very high stress with a lot of travel and repetitive. Awesome how OC2SV has found joy in it.
Your real estate thesis from your July article has not aged well:
“In my opinion, we are going to be in a low-interest rate environment for the rest of our lives. Even if the Fed hikes the Fed Funds rate three times, the 10-year bond yield might only go up by 0.5% at most given the yield curve is sufficiently steep.”
Your opinion was dead wrong, and as you can now see the Fed has to hike rates higher than you ever imagined to tamp down inflation. And with 40% of PCE coming from housing how will the Fed bring down rent inflation? The mechanisms will be painful for real estate as an asset class. I’m 2 years into my 15 yr /1.99% so will just pay off this house and rent it out in retirement but I don’t see good cash on cash returns for new real estate investments moving foreward until values crater. At 7% payments have doubled in a year for a new buyer, so don’t you think values need to deflate proportionately?
Yes, the inflation and mortgage rate upswing has been surprising this year. But I think inflation and rates come back down by mid-2023.
See: The best time to upgrade to a nicer home is coming. I expect to get deals 10% off 1Q2022 prices.
What’s your rent or ownership situation for housing? And for how long?
Once again I’d like to thank you for responding and being willing to debate. I will comit to no snark..
I think you should do a re-assessment of your views as I’m not seeing you provide any evidence to back up your mid-2023 time frame, and in fact both Dimon and Dalio and Brainard have al sent signals in the opposite direction over the past few days. The leak on PPI tomorrow is 8.5% – not good.
Mortage credit has dried up to such an extent, especially for non-owner occupied, that values are going to tumble – basic economics. I saw this in Orange County in 89 where values declined and then moved sideways for almost a decade. The Fed is hell bent on defalting rents as part of their inflation mandate which translates to making income real etsate investments are current pricing completely unattractive. As of today investment grade corporate bonds are almost 6% – between Tbills and AAA 6% bonds why go anyhwhere else?
I was lucky enough to buy the last time rates went up in 2017, which created a serious lull in the Silicon Valley housing market that we pounced on, buying at $600/sq ft with the peak pricing last Dec up to $1100/sq ft. Refi’d down four times over the next 3 yrs to 15 yr/1.99%, a Quicken Loans shop in SF that had such a huge lender credit I actually got a few hundred back at the closing table.
We’re in a big name school district that is super popular with Asian families that can’t quite afford Saratoga/Cupertino/Palo Alto/Los Altos, and we bought an small home below our means which will make it a super attractive well priced rental, and I took advantage of the Dem’s misguided climate policies to take my home off the grid with a 26% subsidy for the full Elon stack. Given I enjoy the intellectual challenge from working here in SV where my sales-guy-with-a-top 10 computer-science-degree lets me virtually select my own employment I plan on working at least another 5-10 yrs. We will rent out this house and buy another down in SoCal to live in. I’d like to buy that 2nd home in the next few years but I’m going to do my best to time that market as OC is not a major job center and thus I feel will see values slashed by 30-50% from 2021 peak depending on location. 2nd home purchase loans are riduclously expensive now as well.
On the private REIT front I saw some news today that was troubling – see yesterday’s WSJ:
The North American Securities Administrators Association is looking into new rules that would limit how much an investor can buy into a non-traded REIT and prohibit such funds from paying out distributions from capital earned from selling shares, The Wall Street Journal reported. Investors would be prevented from putting more than 10 percent of their liquid net worth into a non-traded REIT and other investments provided by the fund sponsor.”
Thanks again for being willing to engage in debating your investement theses.
Sounds good to me. We feel thankful we get to buy a nicer house and some securities at a discount over the coming years. Younger folks and children should be pretty excited as well.
The key for our family is to continue living our lifestyle and not let a bear market affect us. One of the ironies so far is that our passive income continues to go up as rents and rates go up.
Our main goal is to not have to go back to work so we can have more control over our time. The kids are growing up quickly, and we don’t want to mess too much time with them.
Everybody I know has a lot more cash that in the past. I think a lot of people will benefit greatly in the long run, including yourself.
Nobody can see the future, but with all the upheaval, we felt that slower times were probably coming and that is one of the reasons we decided to expand our family again. I’m also doing another professional credential in the down time and putting more energy into my volunteer job with the family centre.
That should keep us busy!
As for the job market, well the wages aren’t high enough for my husband to go back to work and I work casually just to keep a little more status than SAHM. I’ve already been mailing it in forever and work seems to put up with it. At my new job, they promoted me to an easier position with more money this last week. Maybe the whole underdog ruse is the way to go!
Sounds like a plan! Love being the underdog. Lower expectations and easier to outperform if we want to.