Financial Samurai 2019 Economic Outlook And Personal Goals

Happy 2019 everyone!

With my 2018 finishing with 3.8 4.0 out of 5.0 stars, I’ve thought long and hard about how I can make 2019 better. I’ve found a solution.

My 2019 theme is: live the good life. If you live the good life, how can life not be better?

Some people like to tighten their belts during economic uncertainty. I used to be one of those people in 2008-2009. But after a raging bull market since 2009, I feel it’s OK for my family to start spending more on life instead of letting our investments piss away our wealth.

Besides, if panic increases, there will be lots of things going on sale. Let’s first discuss my outlook for 2019 and then I’ll go over my goals.

Financial Samurai 2019 Outlook

Things are uncertain, to say the least. From policy errors by the Federal Reserve to trade wars by Trump to a drastic slowdown in corporate earnings growth (20%+ down to ~7%), we are facing many headwinds in 2019.

Despite the 4Q2018 sell-off in the stock market, JP still wants to raise rates another two times in 2019 to keep inflation at 2%. There’s an old saying on Wall Street: don’t fight the Fed. You will get run over.

If the housing market is weakening, the stock market is correcting, and if the labor market softens given companies are now 20% less valuable on average, it’s baffling why the Fed thinks inflation will accelerate in 2019.

The good news is that 4Q2018 has baked in a lot of the negatives. Valuations are now at around historical averages and expectations have been reset. This doesn’t mean we can’t go lower. And let’s put things in perspective, a -6.4% year for the S&P 500 is not that bad. If it wasn’t for the huge post-Christmas rally, performance would have been much worse.

Historical Forward P/E Ratio Of The S&P 500

The question everybody needs to ask themselves is whether the equity risk premium is worth taking. If you can get a 2.45% risk-free rate of return or pay down more expensive debt (mortgage, student loans, credit cards), is it worth taking risk in equities to maybe make a potentially greater return?

My answer is no. Give me a 2.45% – 5% guaranteed return any day while the world recalibrates. The stress of trying to make perhaps a 10% return in the stock market is simply not worth the premium since there’s probably an equal chance stocks will go down. The peace of mind of a risk-free return should not be under-appreciated, especially if you have more certain ways to make money.

Of course, there are no guarantees. Therefore, my plan is to keep my…

read more…