Bull_Market_Checklist
00:00:00.000 | Hello, everybody.
00:00:01.000 | It's Sam from Financial Samurai, and I hope everyone is doing great.
00:00:04.800 | In this podcast, I want to talk about the bull market checklist to living your best
00:00:09.760 | life today.
00:00:10.760 | And before I get started, there's some housekeeping items I'm going through right now.
00:00:15.880 | If you're an RSS subscriber to the blog articles and have been using my FeedBurner RSS feed,
00:00:22.480 | we're going to be making some changes and no longer using FeedBurner.
00:00:26.980 | And so I suggest you go on to Feedly or BlogLovin or other types of RSS readers and input www.financialsamurai.com/feed
00:00:38.600 | to switch things up because we're creating a new feed for the podcast.
00:00:43.680 | So again, if you want to be an RSS reader, check out Feedly and BlogLovin.
00:00:49.160 | But on to the main menu, bull market checklist.
00:00:52.680 | It is amazing right now, folks.
00:00:54.520 | It cannot get better than right now.
00:00:56.560 | If you're not feeling wealthy today, I'm sorry, but you're probably never going to feel wealthier.
00:01:03.440 | Every single asset class, if you look around, is at all-time highs.
00:01:07.320 | Real estate has rebounded quite nicely since 2018.
00:01:11.080 | The S&P 500 is almost at 3,000.
00:01:15.600 | Interest rates have come down to around 2% on the 10-year bond yield.
00:01:20.240 | Things are kind of nuts.
00:01:21.440 | You're saving money and you're making money.
00:01:23.760 | So when you can do that double under, things are looking pretty good.
00:01:27.080 | So I wanted to highlight 10 things we should all be doing during this bull market to make
00:01:31.460 | the best of the situation.
00:01:32.980 | Because you know what?
00:01:34.280 | It might not last forever and it probably won't last forever.
00:01:38.000 | So number one, take advantage of lower rates.
00:01:40.440 | This is a slam dunk guaranteed home run.
00:01:43.160 | 10-year bond yield is at two-year lows, folks, which means mortgage rates are also at two-year
00:01:48.040 | lows.
00:01:49.320 | So for example, if you're looking for a 30-year fix, you can probably get one for 3.5% to
00:01:55.400 | 3.75% depending on your credit and your relationship.
00:01:58.680 | I'm personally locking in a 7-1 arm at 2.75%.
00:02:02.640 | This is a relationship pricing.
00:02:04.840 | All fees are baked in.
00:02:07.040 | And I'm getting, I think, $4,000 credits.
00:02:09.840 | So they're giving me $4,000 to refinance for free.
00:02:13.840 | So that's pretty darn good, folks.
00:02:15.440 | Two, you're probably going to want to stay exposed, exposed to risk assets like stocks,
00:02:20.440 | bonds, and real estate.
00:02:21.880 | They're your friends in a declining interest rate environment.
00:02:25.360 | Lower interest rates make owning other assets with higher interest rates or potentially
00:02:29.680 | higher returns more attractive.
00:02:32.280 | I can't really tell you how much risk exposure you should have since everybody's risk tolerance
00:02:36.740 | and financial situation is different.
00:02:39.280 | All I can say is that you need to quantify your risk tolerance using the financial seer,
00:02:44.160 | S-E-E-R method, and then invest accordingly.
00:02:48.360 | For myself, I'm relatively conservative, folks.
00:02:51.080 | I have less than 50% of my stock and bond portfolio in stocks.
00:02:56.440 | But it's OK.
00:02:57.440 | It's up about 11%, 11.5%, 12% while the market is up 18%.
00:03:02.300 | I'll take it because my bogey is 5% a year.
00:03:05.560 | So if I'm doing double what my bogey is, I'm feeling good.
00:03:08.960 | So you guys have to figure out how much you're looking to risk in order to get what type
00:03:14.320 | of reward.
00:03:15.720 | The most logical risk asset for me is to invest in real estate because of lower mortgage rates
00:03:20.920 | that will bring in more real estate demand.
00:03:23.680 | Given I'm in San Francisco, I'm thinking there's going to be a liquidity event come November
00:03:28.120 | or December of 2019 when the lockup periods expire for many workers at Uber, Lyft, and
00:03:35.000 | many other firms.
00:03:36.540 | So I think spring 2020 is going to be pretty frenzied.
00:03:40.160 | So I've done some things that are going to go and take advantage of that.
00:03:44.560 | Three, ask for a raise or change jobs.
00:03:47.400 | We're currently at full employment, folks.
00:03:50.920 | The national unemployment rate is only 3.6%, which means that anybody who wants a job pretty
00:03:56.980 | much can get a job.
00:03:58.920 | So in this situation, it is not an employer's market.
00:04:03.080 | It is an employee's market.
00:04:04.960 | The general rule of thumb is that you can get at least a 20% or 25% bump in pay if you
00:04:10.920 | put yourself up on the open market.
00:04:12.680 | That's just the way it is, folks.
00:04:14.480 | And then depending on performance and industry, you can probably get 50% or 100%.
00:04:18.320 | I remember when I was working in finance, every two years, people would be job hopping
00:04:22.480 | for 30% to 50% more guaranteed, and some people got two-year guaranteed bonuses.
00:04:27.360 | This one guy job hopped seven times in 10 years.
00:04:30.640 | I couldn't believe it.
00:04:31.640 | I'm like, you know what, he got pretty, pretty wealthy doing so.
00:04:35.200 | So take advantage of the crazy tight job market.
00:04:38.840 | Four, take a sabbatical.
00:04:40.880 | I know it's tough to get off the grid when so much money is to be made right now, but
00:04:45.480 | it may be now or never, as it might be career suicide to take a sabbatical during a downturn.
00:04:50.640 | Because when you get back, you might not have a job, right?
00:04:54.400 | Not taking a sabbatical was one of my biggest regrets before retirement.
00:05:00.440 | Like I wish I took at least a one-month sabbatical, if not three months.
00:05:04.320 | At my firm, you're allowed to take up to three months sabbatical every five years you work,
00:05:08.280 | and I was there for 11 years, and I didn't take anything.
00:05:10.280 | And so basically, I lost out.
00:05:13.240 | Please take full advantage of your company benefits.
00:05:16.320 | Five, start strategically living it up.
00:05:19.560 | This is the core of this podcast, I think.
00:05:22.400 | If you can't live it up when times are good, you certainly won't be able to live it up
00:05:26.560 | when times are bad.
00:05:28.120 | When times are bad, you'll just want to save more and take on more side hustles to make
00:05:32.040 | more money because you're freaked out.
00:05:34.440 | The end result is that you never end up spending any of your money on living the good life.
00:05:39.960 | And I see older generations, like my parents and their parents and other parents, they're
00:05:46.200 | always super frugal, no matter how much they have.
00:05:49.120 | They've got lifetime pensions, they've got no debt, and they still aren't willing to
00:05:53.480 | spend it up.
00:05:54.840 | So I am encouraging my relatives, specifically my parents, to spend their money, to order
00:06:01.360 | that nice bottle of wine, to order that Wagy steak.
00:06:05.880 | It's okay.
00:06:06.880 | Things will be okay.
00:06:08.480 | During a bull market, you're making way more beyond your normal expected income, right?
00:06:14.200 | Day job, side income, hustling, passive income, capital appreciation.
00:06:20.360 | So in other words, bull market money feels like free money or funny money.
00:06:23.560 | And your goal is to calculate how much funny money or free money you've made each year
00:06:27.720 | from the bull market and proceed to spend some of it on yourself and your family and
00:06:33.080 | your friends and your loved ones.
00:06:34.880 | You don't have to spend all of it, of course.
00:06:36.880 | However, you should try to spend at least 10% of your funny money on living it up.
00:06:43.000 | For example, in the fourth quarter of 2018, I was down about $300,000 in my house fund
00:06:49.000 | portfolio, and that hurt a lot.
00:06:51.000 | The house fund portfolio is what it says it is.
00:06:54.680 | It's to buy another piece of property.
00:06:57.000 | But luckily, the house fund made up all of its losses and then gained about a couple
00:07:00.320 | hundred thousand for a $500,000 swing in six months.
00:07:04.000 | So gaining back that $300,000 felt a little bit like free money because I had foolishly
00:07:08.240 | over allocated towards tech stocks.
00:07:10.840 | But making that extra $200,000 really felt like funny free money.
00:07:15.560 | Therefore, I took a portion of that $200,000 and lived it up a little.
00:07:20.520 | Went on a nice longer vacation, bought some new socks, some new shoes, maybe a new tennis
00:07:26.480 | racket.
00:07:27.480 | Hey, it felt great, and I know it's going to be there with me for a long time.
00:07:30.880 | And I just really want to encourage everybody to spend money on memories and higher quality
00:07:36.100 | items that will bring them joy.
00:07:38.600 | Six, hunt for unicorns.
00:07:41.040 | During a bull market, bigger bubbles tend to form.
00:07:44.200 | And this is the time when you can really, really get rich and when you see people really,
00:07:48.800 | really get rich.
00:07:49.800 | If you can catch a bubble and ride it before it implodes, you could potentially make a
00:07:54.480 | lot, a lot of money.
00:07:56.120 | So I would set aside about 10% of your cash flow, not existing investments, your cash
00:08:00.440 | flow in search of the next great speculative investment.
00:08:04.720 | Speculative investment is usually an unproven product, doesn't have positive cash flow,
00:08:08.840 | and is something not mainstream.
00:08:10.800 | It's something that people will probably ridicule you about.
00:08:14.100 | But that's okay, because by the time everybody recognizes what you've recognized, it's going
00:08:20.200 | to be a little bit too late.
00:08:22.580 | You should expect to lose 100% of your 10% with the chance of making perhaps a 1000 plus
00:08:28.020 | percent return.
00:08:29.020 | The likelihood of either happening is probably small, but there's a saying, no bet, no win.
00:08:35.260 | You just can't be on the sidelines and not take a little bit more risk if you want to
00:08:39.120 | get richer.
00:08:40.320 | It's absolutely fine to invest in index funds like the S&P 500 or the Dow Jones or the Nasdaq
00:08:47.060 | or the bond index, whatever you want.
00:08:49.100 | They're low cost, they're great.
00:08:50.540 | You don't want to try to outperform the market with the majority of your money.
00:08:54.280 | The thing you just have to recognize is that you have little chance of ever getting richer
00:08:59.140 | faster than the majority of the investing population.
00:09:03.300 | And Financial Samurai really is about achieving financial freedom sooner rather than later.
00:09:08.620 | Because if everybody makes a million dollars and you make a million dollars, you're just
00:09:13.700 | another regular person.
00:09:16.300 | If everybody's retiring at 60 and you retire at 60, it's just no big deal.
00:09:20.860 | I'm trying to get folks to get wealthier quicker in a risk adjusted and appropriate manner
00:09:27.220 | so that they can live much richer and fuller lives.
00:09:31.420 | All you need is one lucky break to supercharge your wealth.
00:09:34.460 | And once you get that lucky break, you want to protect your wealth and make it multiply
00:09:39.260 | and make money for you for the long term.
00:09:41.420 | Seven, this is probably not applicable to most people, but shop your business around.
00:09:47.140 | When valuations are high, just like they are in the bull market, you've got a great opportunity
00:09:53.300 | to unload your equity on someone who might not be able to get the same amount of returns
00:09:57.860 | going forward because the valuations are high.
00:10:00.740 | And really folks, if you want to make next generation wealth, you've got to build equity,
00:10:06.620 | own equity and watch that grow and multiply over time.
00:10:10.540 | Number eight, become a charlatan.
00:10:12.860 | In a bull market, qualifications and credentials are often overlooked because everybody's making
00:10:17.540 | so much money.
00:10:19.340 | As Warren Buffett said, you only know who's swimming naked until the tide goes out.
00:10:25.340 | It's only after people start losing money that folks start carefully reading the fine
00:10:28.840 | print and questioning the background of the person.
00:10:33.060 | During the last bull market, I know one guy who wrote a book about how to get rich despite
00:10:37.460 | having recently graduated from college with hardly any money.
00:10:41.860 | And then he sold courses, $1,000 courses online on how to negotiate a pay raise.
00:10:49.260 | Meanwhile, the guy had never had a job for more than two years.
00:10:52.940 | He had not been in the work industry for more than two years.
00:10:56.300 | So he ended up partially getting rich because of his book and because of these courses.
00:11:01.440 | And now he can get even richer because he's now rich.
00:11:05.100 | Today I know of 25-year-olds with zero financial backgrounds who are teaching people how to
00:11:09.640 | invest in the stock market and retire early.
00:11:13.240 | It is unbelievable, folks.
00:11:14.720 | You can do anything you want.
00:11:16.560 | I've got fellow physicians whose expertise is in obviously surgery, medical stuff.
00:11:22.560 | They're talking about making money and all that.
00:11:25.340 | And they might be confusing their high incomes with their investment prowess, but it doesn't
00:11:29.480 | really, really matter because it's a bull market and everybody's getting wealthy.
00:11:34.120 | So if you've ever wanted to make money as a charlatan, now is the time to take advantage.
00:11:38.800 | It doesn't matter if you're a failed political consultant trying to position yourself as
00:11:42.560 | a financial expert or a company founder with no pertinent experience.
00:11:47.440 | If you fake it, chances are the highest during a bull market that you're going to make it.
00:11:52.520 | Nine, calculate your financial independence number.
00:11:56.040 | It's fun to calculate how much you'll have if the bull market lasts for XYZ years.
00:12:01.160 | It's also very dangerous to extrapolate massive gains for a long period of time.
00:12:05.280 | So if you're extrapolating 10%, 15% year-over-year gains for the next five to 10 years, I think
00:12:11.080 | you're going to be in for a big disappointment.
00:12:13.240 | I'd be extrapolating maybe 4% to 6%.
00:12:17.320 | Four to 6%, again, because the 10-year bond yield is 2% and everything is relative to
00:12:21.280 | the risk-free rate.
00:12:22.800 | Your goal should be to come up with your financial independence number that will produce enough
00:12:26.960 | investment income so you never have to work again.
00:12:30.260 | This is my definition and I think the only definition of financial independence on a
00:12:34.980 | mathematical level.
00:12:36.760 | Having enough investment income cover your best life's living expenses.
00:12:42.900 | So once you've created various financial independence scenarios, you'll naturally start taking steps
00:12:48.320 | to get there.
00:12:49.560 | Too many people just wing it when it comes to their finances.
00:12:52.520 | Then they wake up 5, 10, 15, 20 years from now and wonder where all their money went.
00:12:58.320 | It's really easy to lose track and lose sight of your money if you don't have a plan and
00:13:03.600 | you don't check them and if you don't stick to the plan over the long term.
00:13:08.200 | In my case, my FI number keeps growing because of kids.
00:13:13.240 | One kid in San Francisco is very, very expensive.
00:13:17.440 | Two kids is going to be more expensive.
00:13:19.040 | So hey, luckily we can't populate the earth forever because we're getting old.
00:13:25.160 | One of the final things that I recommend everyone do, the 10th item, is to really think about
00:13:31.720 | generational wealth.
00:13:33.360 | This is a tricky subject because you want to obviously set yourself up to be financially
00:13:38.420 | independent but you want your loved ones, especially your kids, not to have to suffer
00:13:45.480 | in case you guys are gone.
00:13:47.520 | So the 10th item really is to talk to an estate lawyer, estate planner, and figure out how
00:13:52.880 | to create generational wealth that won't be wasted because there's a great saying, "From
00:13:59.840 | rice paddy field to rice paddy field in three generations."
00:14:04.160 | You've busted your butt working, saving, investing, taking risks.
00:14:08.940 | You want your kids to do the same and to grow their own wealth.
00:14:12.480 | And just in case they fail, just in case they just cannot succeed in this super hyper-competitive
00:14:17.600 | world, you've got a safety net.
00:14:20.360 | But the key is not to let them know they have that safety net.
00:14:24.280 | Nobody knows how long this bull market will last.
00:14:26.280 | I don't know, really.
00:14:27.400 | I thought things would fade a little bit and things did fade a little bit in 2018 with
00:14:31.840 | the real estate market and the stock market.
00:14:34.400 | But now it's back to bull markets because the Fed said they're going to do whatever
00:14:38.040 | it takes to keep the party alive.
00:14:40.880 | All I know is that for the foreseeable future, the Fed is on our side.
00:14:45.560 | Interest rates are low and there's a presidential election coming up promising us lots of freebies.
00:14:50.760 | We're going to get free tuition, free health care, free back massages, whatever you want.
00:14:55.920 | You name it because the politicians need our votes.
00:15:01.200 | So it's conceivable that at the rate candidates are going, that our children will never have
00:15:06.480 | to work for a living again.
00:15:08.640 | Pretty cool but also kind of dangerous.
00:15:11.480 | So in conclusion, let's really enjoy this bull market.
00:15:14.560 | But also, let's not be delirious and delusional at the same time.
00:15:19.440 | There is one recession indicator we must all be aware of.
00:15:23.360 | And that is when the Fed starts actively and aggressively cutting their Fed funds rate,
00:15:29.000 | a recession is not far behind.
00:15:31.320 | It always happens.
00:15:32.320 | It's within 12 months away once the Fed aggressively starts cutting rates.
00:15:36.560 | And the reason why is because the Fed is a little too slow in cutting rates so they have
00:15:41.600 | to aggressively cut rates because they see the slowdown coming.
00:15:46.160 | And it's coming quickly.
00:15:47.160 | So if the Fed only needs to cut a little bit, let's say one to four times instead of eight
00:15:53.520 | times, things will be okay.
00:15:56.320 | But if the Fed has to be like, "Oh my gosh, we've got to save the economy," that's when
00:16:01.680 | things start spiraling out of control.
00:16:05.040 | The good times aren't going to last forever.
00:16:07.000 | The hammer will eventually drop.
00:16:09.720 | But if we prepare when times are good, maybe only our toes will get bashed in instead of
00:16:14.640 | our heads.