Bristlecone Blog

A spate of recent think-pieces, news segments, and even a forthcoming documentary film have popularized an internet subculture called the “FIRE” movement (which stands for “Financial Independence, Retire Early”). In a nutshell, FIRE is about achieving financial independence earlier in life via extreme frugality and accelerated retirement savings. Its adherents (typically Millennials) report saving as much as 50-70% of their gross income each year, in a bid to accelerate the point at which their investment portfolio can support their modest annual income needs, freeing them from traditional work obligations.

This year is so different from last. In 2017, US stocks marched upward each and every month. International stocks delivered even higher returns, making up partially for some years of underperformance. While short-term interest rates were pushed upward by policy makers, longer-term rates were very steady, leading to good bond returns, too.

You’ve heard us repeat it regularly: although the keys to reaching your financial goals are very simple, implementation is not necessarily easy. The most important rules are: spend less than you earn, invest your savings regularly, keep your investment expenses low, and diversify your portfolio. Today, we’ll focus on this last rule, and consider the recent outperformance of U.S. stocks versus foreign stocks and bonds.

Nearly 50 years ago, nine months before Neal Armstrong’s “giant leap for mankind,” another American made his own giant leap for the record books. The scene was the 1968 summer Olympics in Mexico City. The date was October 18, 1968.

Domestic stocks rebounded in the second quarter–led by small cap, energy, and technology shares—but the broader S&P 500 index still ended the quarter below its January peak (up less than 3% for the year). Investor sentiment during the first half was mixed. Initially, optimism abounded that the stimulative impact of last December’s tax cuts, combined with the longest monthly job expansion on record, would push stocks higher. Subsequently, rising geopolitical tensions and escalating trade disputes have clouded the picture, and increased the potential for negative unintended consequences.

Last week brought news that the average 30-year mortgage rate increased to 4.61%, the highest level since 2011. This should not be particularly surprising–mortgage rates are highly correlated to the benchmark 10-year U.S. Treasury bond yield, which has more than doubled from its record low nearly two years ago: