2024 — How did our i401k do and the ‘vibecession’.
The ‘don’t blame me’ blurb: I am not a financial advisor, portfolio manager, or accountant. This is not tax or investment advice; it’s information to get you going. Please consult your trusty professional and do your due diligence. Carry-on!
U.S. stocks headed for the moon again, while international didn’t get off the launch pad.
2024 — The markets, a Trump election victory, and whatever happened in your freelance industry. What did it all mean for our i401k portfolio and the goal of chill-retirement?
In 2024, many freelancers felt like they were being hammered from every direction. Over the past few years, inflation jacked up prices, and clients lowered budgets or disappeared altogether. My industry, TV news magazines and documentaries, wasn’t great in 2024.
Meanwhile, the economy and the stock market kicked ass.
This all added up to a ’Vibecession,’ a phrase coined by Kyla Scanlon, author and economics explaining social media star. It’s the idea that economic data tells one story, and consumer sentiment (how you feel) tells us another.
Three-Fund Portfolio Review and the Stock Market in 2024
It was a mixed year for our classic Three-Fund ETF Portfolio (U.S. stocks, international stocks, and U.S. Bonds). But that’s why we diversify to get a reasonably good result every year. If one ETF hits the wall, hopefully the other two will be doing ok. If your eggs are all in one basket and that basket gets run over by a truck, it ain’t a good thing.
In the three-fund portfolio, we use either the Schwab or Vanguard ETFs. If you use a single lifepath style fund, that fund will mix the three funds for you.
How did U.S. Stocks do? — SCHB or VTI
A nearly 24% increase. A smash hit.
U.S. stocks went gangbusters in 2024 with a nearly 24% increase. Remember, the long-term average of the U.S. stock market since 1945 is around a 10-11% gain per year, so this year’s 24% gain is pretty epic, especially following 2023’s 26% rise.
The Fed’s lowering of interest rates, historically low unemployment, falling inflation, and a Trump election victory that signaled less regulation and an extension of his tax cuts got investors and Wall Street hyped in 2024.
A NOTE ON INFLATION
The inflation rate is the current measure of how rapidly prices are rising or falling. Decelerating inflation does not mean prices are coming down. This means that the cost of things does not go up as fast.
Think of your favorite coffee shop. The $5 latte didn't go back to $3, it just stopped increasing to $6.
What about our international ETFs? — SCHF or VXUS
Eh, no. A 0.43% return for the year. Boo, boo!
Not so great. Kinda like a three-day-old croissant.
International stocks (you know, Samsung, BMW, Heineken, those guys) looked like they were going well until mid-October, rising for the year by 12%. After that, it was all downhill. SCHF did pay around a 2.7% yield for the year (Our U.S. ETF paid around 1.2%).
Think of it like interest from a bank. If you have $100k in SCHF, you would have received $2,700 in dividend payments back into your account. Dividends are an important multiplier that works in the background.
PORTFOLIO TIP
Make sure you have ‘re-invest dividends’ selected in your trading account for each ETF so the dividends automatically buy more of that ETF’s shares. This creates a nice little compounding effect—dividends BUY more ETF shares, which then pay MORE dividends, fattening your returns.
So why do we keep International around? It’s not because they have cool accents.
U.S. (SCHB) vs International (SCHF). The U.S. broad market clobbered international over the past 10 years
In the last decade, international stocks have not kept up with the U.S. market. So why don’t we dump international? The reason is there seems to be a cyclical nature that we can’t predict between U.S. and international markets.
As you can see below, in 2000 - 2009, international outpaced the U.S.
Look along the top row for the winner of that year. MSCI EAFE (such a catchy name) is international vs the U.S. S&P 500 index.
Many market participants (the sensible ones), including ETF and mutual fund provider Vanguard, predict that international could outperform the U.S. in the next few years. But as usual, no one can really predict what will happen.
That’s why we diversify our investments. While we will never achieve the absolute best performance, we have the greatest chance of achieving a good result every year.
Bottom line? Keep international in the mix. Don’t be fooled by past performance. International stocks will perform at some point; we just don’t know when.
My i401k portfolio mix**.
My current mix is 70/20/10:
70% U.S. Stocks (SCHB)
20% international (SCHF)
10% Bonds. (SCHZ)
My annualized performance since 2015 (the average performance every year the portfolio has existed), when I went freelance and started my i401k, is 9.8%. Not bad, eh?
That’s an average 9.8% gain. Every. Single. Year.
Check out the compounding magic: After 10-15 years, your portfolio reaches around $500,000. Add a 9.8% gain, and it’s now $549,000. The following year, with another 9.8% gain, the account would hit $602,000. In ten years, with an average 9.8% gain year after year, your original $500,000 would be worth 1,089,000. And that’s not counting additional yearly contributions. Now that’s Monster Truck Madness Big!
**Later in life, closer to retirement, many switch to a 60/40 stocks/bonds portfolio for the lower volatility. I suggest that 3-5 years from retirement, you get a plan from a CFP - Certified Financial Planner. They charge a one-off fee.
Prof. Scott Galloway on the Prof G Markets pod:
“I'm rotating out of US-centric investments into other markets. I think the world ex the US is going to likely outperform the US over the next five to 10 years. And so I think there's a lot of opportunity in some of these beaten down markets.”
I love me some Prof G and Ed. They can’t predict the future, but they’re smart, insightful and fun to listen to. Their podcast is here.
Finally, bonds. They’re boring, but we need them. — SCHZ or BND
Bonds bounced up and down a few percent in 2024
We buy the bond ETF for the dividends, not the share price gain.
The bond ETF paid an average dividend of around 4% for 2024. Think of that like interest from a bank. If you have $100,000 in your bond ETF, you would have been paid $4,000 in dividends. Also set this account to ‘re-invest dividends.’ You know the drill, the snowball getting bigger, and all that.
What’s a bond again? It’s when we lend money to the U.S. government (U.S. treasuries) or a big corporation, and they pay us interest. The bonds in SCHZ and BND are super-safe.
Notice how the price of the bond ETF went up and down only a few percent, unlike the wild swings of our stock ETFs. That’s why we have an allocation of bonds in the Three-Funds portfolio. They earn less, but their volatility is much lower. This is much more important when you get older and closer to retirement.
2025, here we come.
That’s it for 2024, g’day 2025! No one can predict the market, no one. The market could crash this year or go up another 24%. We just don’t know.
The good news is it doesn't matter to us. We keep investing every quarter into the i401k, no matter what the market is doing. This year, think about your allocation between U.S., international, and bonds, and make sure you are diversified.
I’ll leave you with a comment from the no BS Wall Street Journal investment columnist Jason Zweig.
January 10, 2025. Wall Street Journal, Jason Zweig:
“How inaccurate are one-year market forecasts? They’re like a person looking in an unlit cavern at midnight for a black cat that isn’t there.
As 2024 began, the average return forecast for the S&P 500 was 7.4% by stock analysts and 1.3% by market strategists. The actual return, including dividends: 25.02%.”
Just Starting Out?
If you haven't opened an i401k yet, make it your 2025 goal! It's like a special savings account that cuts your taxes AND helps you get richer over time. Pretty sweet deal, right? Read the guide here. *
Remember: This investing thing isn't about getting rich quick or beating the market. It's about having a simple plan you can stick with for years. No stress, no constant checking of stock prices, just steady progress toward your goals and chill-tirement.
*I don’t make a dime if you open an i401k with Schwab or E*Trade; I created this site because not enough is being done to help freelancers and single-person businesses. Spread the word, chat with colleagues about investing and retirement. If you like, tell them about Freelancerfinance.net
Thanks to Professor Tom Fahey for giving this a read-over.