Hello, everybody. It's Sam from Financial Samurai. And in this episode, I want to talk about taking action in this bear market. Because in the previous episode, I talked about how to buy treasury bonds. So in Financial Samurai fashion, it's good to learn how, and then it's actually good to take action.

Otherwise, you're just learning for learning's sake, and nothing's ever going to change, or nothing is ever going to happen. So right now, we are back to bear markets. S&P 500 is down about 25%. And I remember-- this is interesting-- I remember back in 2009, it was much worse then.

It was pretty scary. We had like a 50% drawdown in the S&P 500. And I started buying five-year CDs. And why did I buy five-year CDs? To lock up my money. Well, it was because friends left and right were getting laid off. I thought there was a good chance that I might get laid off.

So I was thinking to myself, hmm, I better start saving aggressively. And CDs at the time, five-year CDs, were yielding over 4%. So is this deja vu? Because US treasuries are yielding over 4%, or at least they were. But you can still see some durations, like five-year treasury notes yielding over 4%.

And so I have been buying three-year, two-year, one-year, nine-month treasuries, because they're all yielding over 4%, 4.18% to 4.45%. And what I remember about the global financial crisis is that when my CDs came due in 2012 and 2013, I staggered them. But they were five years. I think I might have bought a seven-year once.

But I was like, wow, I should have just bought stocks, because the stock market had roared back after five to seven years. So I say there's a good chance the stock market will roar back in five to seven years. And it's almost like deja vu. Do I want to make that same mistake and invest so heavily into risk-free assets?

This is something that you and I have to think about on our own. And my answer is I am going to invest about 60% of my cash hoard into US treasuries. And this time, I'm going to stagger them, not all five-year and seven-year. I'm going to stagger them to three-month, nine-month, one-year, two-year, and three-year.

Three-month treasury bills are only yielding about 3.5%. So you're not getting the 4.45% as you could with a three-year. But you get that money back in three months. And it's nice to always feel liquid during times of uncertainty. It always feels off, folks, to deploy your capital during a bear market.

It's a natural instinct to hold onto certainty, to hold onto what you have. But US treasuries, as you listened in my previous episode, are risk-free investments, especially if you invest on the short end of the curve. So I would utilize, at least take advantage of these higher rates for the cash that you plan to sit in your bank account and protect you from emergencies anyway.

Because after three months or nine months or six months, you're going to be liquid on a rolling basis. So start now. And in three months or later, depending on the duration, you're going to be liquid. And you're going to have that rolling liquidity every single month. Well, with 60% allocated towards US treasuries at various durations, what about the remaining 40%?

10% is going to go into the S&P 500 at 3,600 or below. The valuations are reasonable. But the fear, the risk, is that earnings will be cut by the end of this year, let's say by 10%. And the S&P 500 could therefore go down another 10%. Nobody knows. But it would seem logical with all this slowdown and all this uncertainty that earnings would be cut and the stock market could go down.

However, the PE valuation of the S&P 500 could go up as the markets anticipate the future six to 12 months from now, better times ahead. So nobody really knows, which is why I'm willing to leg in at current levels. And I look at 3,200 on the S&P 500 as a realistic worst case scenario, or 10% downside from here.

The other 10%, I'm still legging into Heartland Real Estate. Heartland Real Estate has done phenomenally well in 2022. It's outperformed the S&P 500 by over 30%. But Heartland Real Estate is going to slow as well. Supplies coming on board, rents are fading. And rents, it's really interesting because as mortgage rates rose, it pushed out the marginal buyers, or just buyers in general.

And so they decided to rent. So rents went up in the Heartland, in the Sun Belt. But that is unsustainable in terms of the percentage gains. Rents should grow by the rate of inflation. Well, inflation is high at about 8%. But in the Sun Belt, rents have been growing in the double digits, in the 15%, 16%, 17%.

I expect that to moderate. But I'm still legging in a little bit on the way up. And it's probably going to fade. But I'm focused on the long term in terms of investing in single family and multifamily real estate in the Sun Belt of America. So Fundrise is my favorite platform.

That's been their thesis for a decade now. And that's been my thesis since 2016. You can check out fundrise@financialsamurai.com/fundrise. So so far, we have 60% to treasuries, 10% to the S&P 500, 10% to private real estate funds. We're at 80%. What's up with the last 20%? Well, I like venture capital and venture debt.

I like investing in both asset classes. I've lived here in San Francisco for over 20 years. And it's all about building great companies. A lot of tech companies, just a lot of startups. And if you can invest early in some of these companies, you could do very, very well.

A lot of these companies are staying private for longer. So the returns are being accrued to private investors more than public investors. And it's good for diversification. I don't have to see that daily price movements of these companies. Oftentimes, I just invest, meet the capital calls, and then just sit back and let the managers do their thing.

And it does feel really good to farm out capital, to let professionals who are thinking about their investment style all day long try to invest in good investments for you. Yeah, you pay a fee. It's not cheap, folks. 2% of management, 20% of profits upside. It's a lot of money versus just buying the S&P 500.

But again, I have about 10% of my net worth into these type of investments, venture debt and venture capital. So venture capital is investing more in equities, seed stage, series A, B, C, D, E, F, G, and so forth. And venture capital is basically investing in these private companies, but lending them money and getting a return.

And sometimes you get warrants, which are options to buy equity as well. Venture debt is relatively less risky because the company is already capitalized, and you're just going in there and lending them money, lending well-capitalized companies money to get paid back at a higher interest rate. And in a high interest rate environment, venture debt actually as a whole should do better than venture capital.

But again, no guarantees. I just like both styles of private investments. And I know the GPs, and I believe in the GPs and their work ethic and their vision. All right. So what else should you do with your cash? In terms of paying down debt, I would absolutely pay down consumer debt, revolving consumer debt, i.e.

credit card debt, because your credit card interest rate is going to go higher with the Fed hiking rates by 3% to 4%, right? So the average credit card interest rate is about 18% to 19%. Don't pay that, folks. That is just highway robbery. So if you've got credit card debt, please use your cash to pay that down.

You know, embolden, bolster your cash flow, and stop making the credit card companies rich. In terms of mortgage debt, I would say don't pay off your mortgage debt. Earlier in the year, I paid off some negative interest rate, negative real interest rate mortgage debt. And that was a suboptimal move, because you want to always be optimizing your cash.

If you have a negative real interest rate mortgage, that means inflation is higher than your mortgage interest rate. So inflation is paying down your mortgage debt for you. However, I just did it anyway, because it always feels good to pay down debt. And I've always paid down debt and invested at the same time using my FS-DARE framework, so FS, Debt and Investment Ratio framework.

And if I follow this framework over time, if you do as well, you're always going to be winning somehow. So the beginning of the year, I was paying down some mortgage debt. It wasn't the right optimal financial move, but I felt good. And I understood how I felt, and I understood why it wasn't the optimal move.

However, fast forward to today, it turns out, hey, paying down mortgage debt is a 25 plus percent outperforming move, because that money didn't go into the stock market. Right? Obviously, at the time, I didn't know that. But again, you're always winning if you're always paying down debt. And today, well, we still have high inflation, but you can live for free now by buying US Treasury bills or bonds, which yield a higher rate than your mortgage.

So in this scenario, paying down mortgage debt is even more of a suboptimal move. So I'm not going to be paying down any more mortgage debt from now on. I'm just going to see how things go, pay my regular mortgage payments every single month. And if inflation starts rolling over and if Treasury yields start rolling over to or below my mortgage rate, then I'll start getting motivated.

But my primary residence mortgage is at 2.175% for the next, what, five years. So I just don't see the 10-year Treasury bond getting to that level anytime soon. But it is interesting, folks, right? So inflation is ramped higher relatively quickly within 12 months, and it could collapse relatively quickly within 12 months.

You just never know. So that's why investing in shorter duration T-bills is good for liquidity. But that's also why investing in long-dated Treasury bonds, let's say 20 years, might actually be quite smart as well. Because if inflation rolls over and collapses back to the long-term trend of 2%, locking in a 4.45% 20-year Treasury bond is probably pretty good.

You're not going to get rich, but on a relative basis, it's going to look pretty good. All right, here is the final way I would be spending my cash hoard. Continuing education. I bet, I bet the large majority of folks do not spend any money on continuing education, right?

Everything is for free online, so why bother? But spending more intentionally on your education could very well be the best investment you can ever make, and continuously spending money on your education. Right now, for example, you can just spend $20, $20 to buy Buy This, Not That, How to Spend Your Way to Wealth and Freedom on Amazon, on wherever you want to buy books.

Super cheap, but you're going to gain a wealth of knowledge worth, I would say, 100, 1,000 times more than the cost of the book. And I think it's very similar to other books. One of the peculiar things about now being a published author is that I get to read other authors' books, and I'm addicted.

I am buying books, I'm receiving books, and I'm reading every single day all these topics in terms of finance, self-help, meditation, the youth sports industry, and so forth. And it's just fascinating, and I love enriching my brain through deep, deep dive reading. Reading a book is just a deeper and different way of learning.

Listening to podcasts like this one, it's nice. It scratches the surface. Hopefully, I go a little bit deeper and I help you take more action. But compared to a book where you're just immersed in it, you're looking at the charts, you're really thinking about what the author is saying, it's an even more enriching experience, and it's low cost.

And if you don't want to buy books, you can obviously go on YouTube and watch hundreds of hours about anything you want. As a landlord, I've gone on YouTube many times to learn how to fix things, right? Fix change faucets, fix showers, fix garage doors, and so forth. And I feel I have all these skills to be a pretty good handyman now in the real estate market.

Your children or you could learn about any single topic from middle school and high school. It's a really great supplemental learning for free tool. You can also go back to school part time. That's what I did in 2003. This is after the dot-com bubble. I was worried about whether I would be able to keep my job because people were getting let go after the dot-com bust, and there was like 10 years of the equity market going nowhere.

I didn't know that at the time, but it didn't feel that great in 2002 and 2003. So I decided to go to UC Berkeley's Haas School of Business part time to get my MBA. And that lasted for three years, and it cost a lot of money, but I got 80 plus percent of my tuition reimbursed by my firm.

And I also got my MBA and learned a lot of things about marketing, real estate, finances, entrepreneurship, that gave me a ton of confidence. By the time I was 30 years old, with my MBA, with eight years of experience in finance and banking, I was feeling like a confident man.

And as a result, my career progressed accordingly. I got paid more, I got promoted, and it felt great. Don't underestimate the power of confidence. The confidence you gain by increasing your knowledge is very powerful, very rewarding. When you have confidence, because you have knowledge, good things tend to happen.

You start making more optimal decisions. You start looking at problems as a fun challenge. You look at things differently. You really do. And you have better control over your emotions. You don't let things easily bother you, because you can look at different perspectives better. All right, I'd love to hear how you are spending your cash hoard in this bear market.

Remember, bear markets on average last about 12 months, and they on average see a 35% drawdown. We're about nine months in, and we've seen a 25% drawdown. So the bad times could continue for a while, but what's better than educating yourself, enriching your mind during the bad time to prepare for the better times ahead?

If you would like to support my work, check out BuyThisNotThat@financialsamurai.com/btnt. And also, I'm thinking about 2023 and whether you find value in this podcast. I do this as a labor of love. I love connecting and speaking. However, I'm trying to optimize my time. So if you would like to support this podcast, please leave a review.

And if there are no reviews, it's okay, because it gives me permission to do other things in 2023. And I just wanted to commit to recording at least 50 episodes in 2022, because that was my promise at the beginning of the year, and I never, never break my promise.

Thanks so much, everyone, and hang in there.