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It’s Easier To Generate More Passive Income In A Bear Market

Although going through another bear market is a bummer, the positive is we can all generate more passive income! And given we can now generate more passive income we can also get that much closer to financial freedom.

As a reminder, financial freedom means having enough passive income to cover your desired living expenses. When this happens, you can do whatever you want.

For investors, this bear market with its surging interest rates may very well be a gift. The key is to not get too depressed about your declining portfolio’s value because you have the appropriate asset allocation. Eventually, portfolio values will recover.

Another important component is to maintain your active income streams to take advantage of depressed asset prices. Unless you have a guaranteed pension, retiring early and depending only on passive income sources may not be the optimal strategy.

However, even if you are a traditional retiree with zero active income, you should still see higher Social Security cost of living adjustments. Further, your income-producing investments may automatically generate more income in a higher interest rate environment.

Making More Passive Income In A Bear Market

Like many investors, my net worth has taken a hit with the decline in stocks. At one point, I had 30% of my net worth in stocks. A 25% decline in stocks drags down my net worth by ~7.5%. The most I feel comfortably losing from stocks is 10% of my net worth. After 10%, my mood starts to sour.

But as a fake retiree, my main focus is on generating enough passive income to cover our desired living expenses. Seeing our net worth grow in a bull market is nice for the ego. But the most important thing a retiree cares about is their cash flow, not net worth.

Net worth is more of a subjective vanity metric. It’s good to calculate so you can see what type of investment income yield you are generating based on your exposure. It’s also good to stay on top of your net worth for estate planning purposes.

But other than these two reasons, cash flow is more important than net worth. Cash flow is real, whereas net worth is subjective. My #1 financial goal is to generate enough investment income to support our desired lifestyle.

Higher Interest Rates Means More Passive Income

When interest rates go up, everything from bond yields to dividend yields also tends to go up. The reason why is because every yield is relative to the risk-free rate of return.

No rational investor would invest in a risk asset if they could get a higher risk-free return. As a result, investors should be able to generate more easily passive income when interest rates are higher.

Corporations issuing bonds need to increase their coupon payments to stay competitive with government bonds. Corporations may also increase dividend payout ratios to increase stock dividend yields as well.

In regard to real estate, cap rates need to go up to make the property more attractive compared to the risk-free rate of return. If rents don’t go higher then property prices should adjust downward. This is natural market forces at work.

In general, landlords are a big beneficiary of inflation as real estate prices and rents increase. It’s just that at the moment, the temporary rise in mortgage rates has been too quick.

The Crowding Out Of Private Capital Due To Higher Rates

In the past, I would regularly invest the majority of my cash flow in the S&P 500 and in private real estate funds. These two types of investments generated investment yields of between 1.5% – 10% on average. Further, the income generated is 100% passive.

However, with higher interest rates, government bonds are now crowding out private capital. Instead of mostly investing my cash flow into the S&P 500 and private real estate funds, I’ve earmarked 60% of my cash toward buying Treasury bonds yielding ~4.5%. Yes, 40 percent is still being invested in risk assets, but that percentage was closer to 80 percent before interest rates skyrocketed.

A guaranteed 4.5% rate of return on 1-3-year Treasury bonds is attractive for anyone who relies on investment income to stay free. Treasury bond yields are especially attractive compared to receiving a ~1.8% dividend yield from the S&P 500, which is highly volatile.

US Treasury bond yield versus the S&P 500 dividend yield

Real estate can easily yield greater than 4.5%. However, there is also downside risk now that mortgage rates have surged higher. Real estate prices could easily decline by 5% – 15% over the next 12 – 18 months if mortgage rates don’t come down during this time period. As a result, it’s better to slow down capital deployment or bid more aggressively.

Finally, some of the capital that might have gone to high growth stocks may now go to higher-yielding bonds or higher-dividend-yielding stocks. In a bear market, a flight to safety often means greater passive income. A bear market also reminds you that cash flow is king!

Nominal Returns Are Still Good

Sure, your higher-yielding investments may still lose in real terms due to even higher inflation. However, making a nominal return is still better than actually losing money. And if you aren’t losing money from your investments in a bear market, I’d love to know what you’re investing in.

Due to higher interest rates, this year I’ve been able to boost my overall passive income portfolio by about 10%, or roughly $35,000. The increases are mainly coming from Treasury bonds, private real estate investments, and rental property income.

As a fake retiree, I have cash flow from Financial Samurai and other writing-related activities, which gets reinvested into income-generating investments. I also have excess passive income that gets reinvested since we spend less than our current passive income amount.

Here are some ways I’m boosting passive income in this Fed-induced bear market.

Passive Income Boosts In A Bear Market

  • So far I have invested $250,000 in Treasury bonds that will generate an extra $11,250 a year. Before this year, Treasury bond yields were not attractive.
  • Sunbelt rental property income is rising from ~$50,000 (excluding distributions) to about $60,000 given higher mortgage rates are pushing more people to rent. Check out Fundrise, my favorite private real estate investing platform.
  • Lake Tahoe vacation property net rental income has increased from about $650 a month to $1,500 a month net on average given no more COVID restrictions. We went twice this summer and activity was robust.
  • Boosted one property’s rental income from $6,700 to $8,000 a month. About $300 of the rent increase was due to the market and $1,000 was due to a remodel that created an extra living room, bedroom, bathroom, laundry room, and closet. Tenants have agreed to a $200 rent increase next year.
  • Venture debt investments should generate higher returns given pricing is based on the risk-free rate plus a markup. I estimate an extra $3,000 – $5,000 in annual income from new investments this year.

Below is my estimated passive income streams for 2023. There will likely be a +/- 15% variance mainly due to distribution amounts from various private fund investments.

Financial Samurai passive income estimate 2023

Maybe A Bear Market Isn’t So Bad After All

The income yield of your overall investment portfolio is likely up because of higher interest rates and a decline in your portfolio’s value. So long as the bear market doesn’t suffer much more than a 35% drawdown, we should be OK.

It’s obviously a bummer to see your portfolio’s value go down. Retiring at the top of the cycle is terrible timing. But if you have cash flow, you can now buy higher-yielding assets. Therefore, a bear market helps you get to financial independence quicker or may increase your chances of staying retired.

Once a bull market returns, investment yields will likely go down as asset prices rise. In such a scenario, you’re still making the same amount or more in passive investment income.

In other words, so long as you have regular cash flow and things don’t get too bad, you’re always winning! Even if you plan to retire, I recommend finding ways to continuously make supplemental retirement income.

The best supplemental retirement income is doing something you’d do for free because it brings you joy and purpose. Financial Samurai will last for years to come because it’s still enjoyable to operate. I will also probably write more books before I die.

Shift To Income-Producing Assets Well Before You Retire

A bear market is a good reminder to start shifting some of your non-income-producing investments to income-producing-investments years before you retire. After all, the only way to capitalize on growth stocks is to sell occasionally.

If you counted on making the switch to more income-producing assets this year, then obviously you’re more bummed out. Therefore, it is probably wise to start making the asset transfer three-to-five years before you retire.

A bear market is also a good reminder to always have some active income sources so you can take advantage of depressed prices. Don’t just retire and do nothing. Retire and do something purposeful that also generates income. It doesn’t feel good to be 100% at the mercy of the market.

Not only do income-producing assets tend to outperform during a bear market, they can sometimes produce even more income during downturns. With a proper net worth asset allocation, you should be able to weather the storm until good times return.

Questions And Action Items

Readers, are you finding that your passive investment income is going up in this bear market? How are you planning on taking advantage of higher rates to generate more passive income?

If you’re looking to surgically invest in real estate, take a look at Fundrise. Fundrise is a vertically integrated real estate platform that invests predominantly in Sunbelt single-family properties. Private real estate is a good way to diversify and earn income 100% passively.

If you would like an unfair competitive advantage in building wealth, pick up a hard copy of my instant WSJ bestseller, Buy This, Not That. The book goes deep into helping you build more passive income during a bear market or bull market.

For more nuanced personal finance content, join 50,000+ others and sign up for the free Financial Samurai newsletter. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009.

It’s Easier To Generate More Passive Income In A Bear Market is written by Financial Samurai for

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IRS Out For Blood More Than Doubling Penalty Interest

IRS taxes increase

In a blatant act of financial tyranny, the IRS is intensifying its assault on hardworking Americans by shamelessly jacking up the interest penalty on underpaid taxes from a pitiful 3% to an exorbitant 8%. This calculated move, recalibrated quarterly, serves as a stark reminder of the insatiable appetite of the IRS, an oppressive behemoth relentlessly extracting every last penny from citizens already shackled by burdensome taxation.

Specifically targeting non-corporate taxpayers, the IRS demands the federal short-term rate plus an additional three percentage points, a blatant money grab that directly targets struggling self-employed individuals, independent contractors, and gig economy workers. These individuals, already grappling to make ends meet, find themselves in the crosshairs of a government voraciously hungry for more of their hard-earned wages.

For those daring to resist this blatant financial coercion and falling short on their payments, brace for the punitive underpayment penalty. There’s a meager concession – if the amount due is under $1,000 after begrudgingly considering credits and other tax factors, citizens might receive a temporary reprieve from the claws of the taxman.

This audacious maneuver puts the self-employed and independent contractors in the IRS’s oppressive grip, coercing them to make quarterly estimated tax payments under the looming threat of severe financial retribution. The January 16, 2024 deadline for the fourth quarter of 2023 is fast approaching – a date that casts a dark shadow over those grappling with the suffocating weight of government overreach.

While the regular W-2 employees might momentarily sigh with relief as taxes are conveniently siphoned from each paycheck, tax experts issue a stern warning against such complacency. Joseph Doerrer, a CPA and financial planner from New Jersey, challenges individuals to scrutinize their tax situation, posing the provocative question, “Are you where you should be?” A question that echoes as a stark reminder of the government’s overreach into the pockets of hardworking Americans.

One taxpayer, Sameet Durg, found himself blindsided by an underpayment penalty reaching into the thousands – an unwelcome surprise that serves as a chilling testament to the relentless demands of the IRS. Durg, a marketing executive, now watches his finances with unwavering vigilance, refusing to endure a hefty hit come April.

As the IRS unabashedly cranks up the interest penalty, taxpayers are left grappling with the heavy-handed tactics of an agency that seems insatiable in its quest to confiscate more of their hard-earned money. This move underscores the urgent need for citizens to vehemently resist the oppressive tax regime, actively defy the IRS’s overreach, and reclaim sovereignty over their wages.

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GUILTY! Sam Bankman-Fried Faces Over 100 Years in Prison

GUILTY! Sam Bankman-Fried Faces Over 100 Years in Prison

( – Sam Bankman-Fried has been found guilty of all charges related to the collapse of his Bitcoin exchange, FTX.

“A New York jury in Manhattan federal court agreed with prosecutors that Bankman-Fried defrauded investors, customers and lenders in connection with the collapse of his crypto empire,” reported Fox Business.

“Prosecutors accused Bankman-Fried, who founded and controlled both FTX and sister hedge fund Alameda research, of misappropriating and embezzling billions of dollars in FTX customer deposits, scheming to mislead investors, and instructing other executives at his businesses to do the same,” it added.

Bankman-Fried was charged with five charges of conspiracy and two counts of wire fraud in the first two criminal trials.

The maximum sentence for each crime was 110 years in prison.

The hearing for Bankman-Fried’s sentence has been scheduled for March 28.

The Southern District of New York’s U.S. attorney, Damian Williams, commended the decision and said that Bankman-Fried “perpetrated one of the biggest financial frauds in American history.”

“The cryptocurrency industry might be new, the players like Bankman-Fried might be new,” Williams said. “But this kind of fraud, this kind of corruption, is as old as time.”

NBC News gave some background information and historical context before the decision:

“FTX and Alameda quickly collapsed in November 2022 after some of their financial liabilities were exposed.

The fact that Alameda had taken billions of dollars from FTX’s customers and that much of Alameda’s balance sheet was comprised of digital currency assets it had created was central to the case against Bankman-Fried.

Unnerved by disclosures about the firm’s financial position, many of FTX’s customers tried to get their money back. That set off the equivalent of a bank run.

The value of Alameda’s investments crashed, and FTX couldn’t return much of that money because it had been given to Alameda. Some went to the fund’s lenders, and billions were spent on sponsorships, commercials, and loans to top executives. That, too, was a major part of the case against Bankman-Fried.”

Following the collapse, more FTX and Alameda executives were prosecuted, including former CEO of Alameda Caroline Ellison, co-founder of FTX Gary Wang, and chief technology officer of FTX Nishad Singh.

All three pleaded guilty, agreed to cooperate, and testified against Bankman-Fried.

In exchange for their cooperation, they will receive less severe punishments.

In his defense, Bankman-Fried stated that he never intended to deceive anyone and that, following the failure of FTX and Alameda, the government had been searching for someone to blame.

“Mr. Bankman Fried maintains his innocence and will continue to vigorously fight the charges against him,” Mark S. Cohen, counsel to Bankman-Fried, said in response to the verdict.

Williams stated that he hoped the conviction would be an example for others.

“It’s a warning, this case, to every single fraudster out there who thinks that they’re untouchable, or that their crimes are too complex for us to catch, or that they’re too powerful for us to prosecute, or that they could try to talk their way out of it when they get caught,” Williams said. “Those folks should think again.”

Copyright 2023.

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Brutal ‘Bidenflation’ Has 1 in 6 Retirees UNRETIRING

Brutal 'Bidenflation' Has 1 in 6 Retirees UNRETIRING

( – According to an analyst, “Bidenflation” may be a long-term issue, leading one out of every six pensioners to contemplate retiring early.

It will undoubtedly persist if Biden wins re-election.

In the far-left USA Today, Patrice Onawunka laments the possibility that the “financial insecurity” brought on by inflation—which was brought on by “reckless federal spending”—will last forever.


“People have connected the dots between ill-advised government policies and harsh economic outcomes. Spending nearly $2 trillion on government transfers to almost every household during supply-chain disruptions and exacerbated labor shortages caused inflation to accelerate. Putin’s invasion of Ukraine and other production disruptions worsened it.

The Biden administration and congressional Democrats passed a climate change bill that they falsely labeled the Inflation Reduction Act in hopes of fooling Americans, especially seniors.

The bill never addressed rising food, housing, or energy prices — households’ most basic and critical needs. Any climate savings would take years to come to fruition and could be offset by new costs for families — tens of thousands of dollars — on new electric vehicles.

Meanwhile, the green subsidies cost more than three times what the law’s supporters claimed.”

What could be crueler than adopting a law that does the exact opposite and is titled the Inflation Reduction Act?

55 percent of those who have already had to un-retire claim it was because they needed more money.

The White House and corporate media continue to lie to us by promising that the inflation issue will pass quickly, yet nothing ever appears to change.

Everything’s cost is skyrocketing especially housing. Meanwhile, Joe Biden is exerting every effort to keep inflation high. The federal government spends like a drunken sailor, which cheapens money.

Even worse, Biden has permitted countless millions of illegal immigrants to enter our nation, which raises the price of housing by increasing demand for limited items like housing.

Housing is a necessity, Onwuka tells us, unlike other discretionary expenses. Rent costs in America are rising, disproportionately affecting older folks and those with low incomes, especially those on fixed budgets.

In addition, she states that “10 million households headed by people aged 65 or older spend more than a third of their income on housing, and half of these pay more than 50%.”

See what happens when you factor millions of illegal immigrants into the housing problem.

Biden punishes Americans who have lived by the book, paid their taxes, saved money, and worked hard. He is putting the interests of millions of illegal aliens—who raise demand for everything and drive up prices for everything—above the interests of those Americans.

“In a little over four years, I intend to retire. I’ll never be wealthy, but since I started my first 401K in 1994, I’ve been setting money aside for that moment. I enjoy both my job and my coworkers.”

That isn’t the problem. The dream is the problem… the desire to live out your third act with the freedom and resources to do whatever you want.

Similar actions are taken by many working Americans who save money and forgo immediate enjoyment to prepare for their elderly years. As a result, I find it difficult to understand what it must be like to enter a dream before having it destroyed.

The anguish of coming out of retirement, returning to the grind, and facing Monday mornings all over again escapes me.

The only idiots, child abusers, and masochists vote Democrat.

Copyright 2023,

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