What if the market stops going up?

[abhi764]

IndexFunds investing seems to operate under an assumption that, the market always goes up, and beats inflation in the long run. Hence, buying and holding total stock market kind of index funds, generates wealth over the decades. This assumption is true for markets like US (S&P 500), UK (FTSE) and even India (NIFTY 50) where the indexes are going up ever since their inception. It is not true for some other prominent markets like Japan (NIKKEI 225), China (SZSE)/Shanghai (SSE), where the market oscillates between a high and a low, with below-inflation returns over periods of even 50 years.

So it's possible, that even US and UK markets could flip at some point in future and start oscillating between a high and low. And it might only be evident say 30 years later in the hindsight.

How can someone planning for early retirement, based on index funds income during retirement, plan for such an event? What are some things he/she do before going into retirement, to minimize the financial harm caused by such an event?

[tibbitts]

IndexFunds investing seems to operate under an assumption that, the market always goes up, and beats inflation in the long run. Hence, buying and holding total stock market kind of index funds, generates wealth over the decades. This assumption is true for markets like US (S&P 500), UK (FTSE) and even India (NIFTY 50) where the indexes are going up ever since their inception. It is not true for some other prominent markets like Japan (NIKKEI 225), China (SZSE)/Shanghai (SSE), where the market oscillates between a high and a low, with below-inflation returns over periods of even 50 years.

So it's possible, that even US and UK markets could flip at some point in future and start oscillating between a high and low. And it might only be evident say 30 years later in the hindsight.

How can someone planning for early retirement, based on index funds income during retirement, plan for such an event? What are some things he/she do before going into retirement, to minimize the financial harm caused by such an event?

Sometimes you lose, and you can't do anything to prevent that. I agree that the Boglehead case is for average being good enough, which it's been (for a U.S.-centric investor at least) for a long time. If that ceases to be the case for any extended period, probably there will be far fewer Bogleheads.

[Triple digit golfer]

Diversify across the world's equity markets.

[theorist]

— Save as much as possible.

— Diversify your investments. If you were Japanese and 100% in Japanese stocks, it would be much worse for you post 1989 than if you were Japanese with a widely diversified equity portfolio holding the full range of developed and emerging markets stocks.

— If the entire world economy collapses, your investments won’t do well. But neither will anyone elses, and there will be broad societal changes (or disruptive collapse) as a result of, and to deal with, the resulting hardships. In that case your investments will not be your primary concern.

[Tamalak]

A plan with a failure rate is still a plan.

[livesoft]

How can someone planning for early retirement, based on index funds income during retirement, plan for such an event? What are some things he/she do before going into retirement, to minimize the financial harm caused by such an event?

Easy: Save enough money such that if investments do not go up that one has enough money to pay expenses that might go up by the rate of inflation.

So say instead of saving $2 million, one might save $6 million before doing the early retirement thing. The math is simple.

Or have the option to go back to work at any time. That'll work as well.

[willthrill81]

IndexFunds investing seems to operate under an assumption that, the market always goes up, and beats inflation in the long run. Hence, buying and holding total stock market kind of index funds, generates wealth over the decades. This assumption is true for markets like US (S&P 500), UK (FTSE) and even India (NIFTY 50) where the indexes are going up ever since their inception. It is not true for some other prominent markets like Japan (NIKKEI 225), China (SZSE)/Shanghai (SSE), where the market oscillates between a high and a low, with below-inflation returns over periods of even 50 years.

So it's possible, that even US and UK markets could flip at some point in future and start oscillating between a high and low. And it might only be evident say 30 years later in the hindsight.

How can someone planning for early retirement, based on index funds income during retirement, plan for such an event? What are some things he/she do before going into retirement, to minimize the financial harm caused by such an event?

The standard answer is that an early retiree should have a globally diversified portfolio heavily tilted toward equities, at least 70%. Choosing a portfolio with historically low start-date sensitivity might be good. There are 'non-BH approved' approaches that might be helpful too.

Also, one's withdrawals should be flexible, especially as an early retiree.

[KlangFool]

IndexFunds investing seems to operate under an assumption that, the market always goes up, and beats inflation in the long run. Hence, buying and holding total stock market kind of index funds, generates wealth over the decades. This assumption is true for markets like US (S&P 500), UK (FTSE) and even India (NIFTY 50) where the indexes are going up ever since their inception. It is not true for some other prominent markets like Japan (NIKKEI 225), China (SZSE)/Shanghai (SSE), where the market oscillates between a high and a low, with below-inflation returns over periods of even 50 years.

So it's possible, that even US and UK markets could flip at some point in future and start oscillating between a high and low. And it might only be evident say 30 years later in the hindsight.

How can someone planning for early retirement, based on index funds income during retirement, plan for such an event? What are some things he/she do before going into retirement, to minimize the financial harm caused by such an event?

abhi764,


1) Unless you are 100% stock, why is this a problem?


2) If you are not 100% stock, market oscillation is a great thing! You make money from rebalancing.

3) My AA is 60/40. I made good money from rebalancing because of the 2020 market oscillation.

4) It is very simple. Someone plan for retirement by having an asset allocation that is not 100% stock. And, at least 10 years of expense in the fixed income. Something like 60/40.


KlangFool

[000]

Active management and pure alpha strategies (long-short) will be back in vogue, even here.

[alex_686]

Why do people save instead of engaging in current consumption. In part because saving today leads to higher consumption tomorrow. i.e., we have a positive real interest rate for savings. Not exactly a requirement. There are places and times when this is not true.

Why do people invest? That is, move money from cash, safe savings, and government bonds into risky investments? For stocks, it is the Equity Risk Premium. (ERP). We expect extra return for taking risk.

We can stop here. No need to go further.

We don't need the stock market to go up. This is a bit of red herring. You want to look at Total Returns. For most of the 19th century the London stock market did not go up. You could buy a $100 government bond and get 2% a year. Or you could buy a risk stock for $100 and collect $4 a year. You got you money from dividends, not principle increases.

There are no easy answers. Market expectations is that we will have low returns for the foreseeable future. Yields on long term government bonds and low. Equity yields (the inverse of the P/E ratio - my favorite is CAPE 10) are low. Keep current asset allocation, accept lower returns and more equity risk. More bonds and less equities, accept low returns and and inflation risk. Annuitize your income, but inflation is a issue.

[Pandemic Bangs]

How can someone planning for early retirement, based on index funds income during retirement, plan for such an event?

I think you get rich first and then plan for early retirement. It's problematic if you do it in the reverse order.

[usagi]

Then I'll be glad I am one of those unknowledgeable, foolish investors that likes companies that pay dividends. I planned my retirement around that possibility. Hence I can live on less than a 1% dividend yield without compromising my standard of living.

Essentially if you can do it, without impeding your enjoyment of life, saving a year of living expenses for each year you work puts you in a fairly good place. This is what I do and what my children do. Of course if you invest it in equities you could reach critical mass sooner or lose it all. So you need to consider your asset allocation.

[jebmke]

Then I'll be glad I am one of those unknowledgeable, foolish investors that likes companies that pay dividends. I planned my retirement around that possibility. Hence I can live on less than a 1% dividend yield without compromising my standard of living.

Total Stock Market Index is yielding almost 1.4% now - so you are underperforming if you are getting < 1%

[usagi]

Then I'll be glad I am one of those unknowledgeable, foolish investors that likes companies that pay dividends. I planned my retirement around that possibility. Hence I can live on less than a 1% dividend yield without compromising my standard of living.

Total Stock Market Index is yielding almost 1.4% now - so you are underperforming if you are getting < 1%

I am not getting < 1%, my expenses are less than one percent of my portfolio.

[willthrill81]

Positive real returns certainly help investors achieve their goals, but they are not usually the end goal: future consumption typically is.

This reminds me of Aesop's story of the ants and the grasshopper. The ants didn't get a return on their investment, but they provided for their own future consumption, unlike the grasshopper.

One bright day in late autumn a family of Ants were bustling about in the warm sunshine, drying out the grain they had stored up during the summer, when a starving Grasshopper, his fiddle under his arm, came up and humbly begged for a bite to eat.

"What!" cried the Ants in surprise, "haven't you stored anything away for the winter? What in the world were you doing all last summer?"

"I didn't have time to store up any food," whined the Grasshopper; "I was so busy making music that before I knew it the summer was gone."

The Ants shrugged their shoulders in disgust.

"Making music, were you?" they cried. "Very well; now dance!" And they turned their backs on the Grasshopper and went on with their work.

http://read.gov/aesop/052.html

[H-Town]

IndexFunds investing seems to operate under an assumption that, the market always goes up, and beats inflation in the long run. Hence, buying and holding total stock market kind of index funds, generates wealth over the decades. This assumption is true for markets like US (S&P 500), UK (FTSE) and even India (NIFTY 50) where the indexes are going up ever since their inception. It is not true for some other prominent markets like Japan (NIKKEI 225), China (SZSE)/Shanghai (SSE), where the market oscillates between a high and a low, with below-inflation returns over periods of even 50 years.

So it's possible, that even US and UK markets could flip at some point in future and start oscillating between a high and low. And it might only be evident say 30 years later in the hindsight.

How can someone planning for early retirement, based on index funds income during retirement, plan for such an event? What are some things he/she do before going into retirement, to minimize the financial harm caused by such an event?

It’s pretty easy and straightforward. Get back to work and live below your means. I mean you’ve done it all your life, right? You gotta learn to let go what you can’t control, and focus solely on what you can control. So whatever market does, we go with it.

[qwertyjazz]

Spend more now as saving will not be as useful. Go back to work at some point if needed. As money is worth more tomorrow than today, you save. When that ratio flips, you spend.

[peetsperk]

Sorry abhi764, but I disagree with your basic premise that investing in index funds "seems to operate under an assumption that, the market always goes up, and beats inflation in the long run". To quote Jack Bogle from The Little Book of Common Sense Investing, index funds "eliminate the risk of individual stocks, the risk of market sectors, and the risk of manager selection, with only stock market risk remaining." And as Jack points out, that risk is "quite large enough, thank you." There is no assumption that "markets always go up."

[Ivygirl]

Positive real returns certainly help investors achieve their goals, but they are not usually the end goal: future consumption typically is.

This reminds me of Aesop's story of the ants and the grasshopper. The ants didn't get a return on their investment, but they provided for their own future consumption, unlike the grasshopper.

One bright day in late autumn a family of Ants were bustling about in the warm sunshine, drying out the grain they had stored up during the summer, when a starving Grasshopper, his fiddle under his arm, came up and humbly begged for a bite to eat.

"What!" cried the Ants in surprise, "haven't you stored anything away for the winter? What in the world were you doing all last summer?"

"I didn't have time to store up any food," whined the Grasshopper; "I was so busy making music that before I knew it the summer was gone."

The Ants shrugged their shoulders in disgust.

"Making music, were you?" they cried. "Very well; now dance!" And they turned their backs on the Grasshopper and went on with their work.

http://read.gov/aesop/052.html

The Ants are jerks and deserve to sit in the dark on their pile of grain and have no music.

Planning and scrimping is not natural for free spirits and it kills their souls. If all the Grasshopper wants is a bite to eat because he knows he screwed up by not saving, well give it to him. But he should expect to be poor. The music is his riches. What's that Thoreau quote of a Eastern wise man? "He who looks down doth not approach greatness, while he who is looking up is growing poor." True words.

[firebirdparts]

Bummer.

[Silverado]

Then I'll be glad I am one of those unknowledgeable, foolish investors that likes companies that pay dividends. I planned my retirement around that possibility. Hence I can live on less than a 1% dividend yield without compromising my standard of living.

Essentially if you can do it, without impeding your enjoyment of life, saving a year of living expenses for each year you work puts you in a fairly good place. This is what I do and what my children do. Of course if you invest it in equities you could reach critical mass sooner or lose it all. So you need to consider your asset allocation.

Not sure you understand how markets work or where that dividend money comes from. But you are clearly convinced and I doubt you care, so I’ll just say good luck.

[sperry8]

IndexFunds investing seems to operate under an assumption that, the market always goes up, and beats inflation in the long run. Hence, buying and holding total stock market kind of index funds, generates wealth over the decades. This assumption is true for markets like US (S&P 500), UK (FTSE) and even India (NIFTY 50) where the indexes are going up ever since their inception. It is not true for some other prominent markets like Japan (NIKKEI 225), China (SZSE)/Shanghai (SSE), where the market oscillates between a high and a low, with below-inflation returns over periods of even 50 years.

So it's possible, that even US and UK markets could flip at some point in future and start oscillating between a high and low. And it might only be evident say 30 years later in the hindsight.

How can someone planning for early retirement, based on index funds income during retirement, plan for such an event? What are some things he/she do before going into retirement, to minimize the financial harm caused by such an event?

Every action has a reaction. If net worth stopped going up, it is also likely asset prices stop going up. After all in a world where your savings stops growing, your purchases would also decrease. So you may see prices stay static or even go lower as demand stops or decreases. This would make what money you have go further

[LongTermInvestor88]

IndexFunds investing seems to operate under an assumption that, the market always goes up, and beats inflation in the long run. Hence, buying and holding total stock market kind of index funds, generates wealth over the decades. This assumption is true for markets like US (S&P 500), UK (FTSE) and even India (NIFTY 50) where the indexes are going up ever since their inception. It is not true for some other prominent markets like Japan (NIKKEI 225), China (SZSE)/Shanghai (SSE), where the market oscillates between a high and a low, with below-inflation returns over periods of even 50 years.

So it's possible, that even US and UK markets could flip at some point in future and start oscillating between a high and low. And it might only be evident say 30 years later in the hindsight.

How can someone planning for early retirement, based on index funds income during retirement, plan for such an event? What are some things he/she do before going into retirement, to minimize the financial harm caused by such an event?

Hi there

For someone that seems to have a great deal of uncertainty around the markets I would strongly suggest holding a global cap weight index as your core fund and ask yourself these questions how likely is it that the global economy will continue to grow? Do the price of goods and services generally rise with inflation? Is global inflation more likely than deflation so will the value of the company's you own at the very least increase inline with inflation. Hold a global bond fund to manage your level of tolerance to downturns. Keep investing through thick and thin and don't peek to often, chances are good it will work out. Just out Lars Kroijers YouTube vids for rationale behind global cap weight.

[alex_686]

Every action has a reaction. If net worth stopped going up, it is also likely asset prices stop going up. After all in a world where your savings stops growing, your purchases would also decrease. So you may see prices stay static or even go lower as demand stops or decreases. This would make what money you have go further

This is a bit off. Just because the world's wealth increases does not mean that wealth will be captured by large publicly traded firms. Consumers, employees, management, government, entrepreneurs, private firms, and the institutionally wealthy could capture this. The past 40 years has been a bit of a outlier with both wealth increasing and equity ownership (in particular, large public corporations) getting a increasing share. i.e., a large pie and a larger slice of that pie. Historically, capital is getting very large slice of the pie. Who is to say this won't reverse to historical norms? That the slice f the pie will shrink?

[praxis]

It's hard to predict with accuracy. We say that daily.

Once you've won the game, leave the table, so

as a retiree, I am slowly shifting my asset allocation
so that "safer" investments can sustain us even if
we take a big hit on stocks. I did it again last week.

I wish I had better returns on these less risky
investments, but I prefer the safety.

[sperry8]

Every action has a reaction. If net worth stopped going up, it is also likely asset prices stop going up. After all in a world where your savings stops growing, your purchases would also decrease. So you may see prices stay static or even go lower as demand stops or decreases. This would make what money you have go further

This is a bit off. Just because the world's wealth increases does not mean that wealth will be captured by large publicly traded firms. Consumers, employees, management, government, entrepreneurs, private firms, and the institutionally wealthy could capture this. The past 40 years has been a bit of a outlier with both wealth increasing and equity ownership (in particular, large public corporations) getting a increasing share. i.e., a large pie and a larger slice of that pie. Historically, capital is getting very large slice of the pie. Who is to say this won't reverse to historical norms? That the slice f the pie will shrink?

Fair point. You're saying that markets could stop going up but money supply and growth can continue - just not via publicly traded firms. If that occurred, then my counter reaction would not come true (asset prices would not stop rising). However, it's an interesting world where consumers/employees/management (all the same thing) capture monies where their bosses do not. This statement only goes to public firms of course. So truly it'd have to be a world where government and private firms capture wealth growth while public firms are left behind. Hard to see an example of this in the real world... do you have one?

[alex_686]

Fair point. You're saying that markets could stop going up but money supply and growth can continue - just not via publicly traded firms. If that occurred, then my counter reaction would not come true (asset prices would not stop rising). However, it's an interesting world where consumers/employees/management (all the same thing) capture monies where their bosses do not. This statement only goes to public firms of course. So truly it'd have to be a world where government and private firms capture wealth growth while public firms are left behind. Hard to see an example of this in the real world... do you have one?

Quite a few. You can start with the national income accounts and see who is earing what. In the US, large public companies have had a growing slice of the pie since the 1980s.

Employees used to take a higher share of the pie. Lots of things happening here, but there has been a shift from low and moderately skilled worked to high skill work. The technological revolutions of the 1920s, 1950s, and 1990s increased the productive of the average worker. You got massive productive boosts by taking away typewriters and adding machines and giving them a networked GUI desktop. Now it is inverted. Technology is improving the productivity of the highly skilled, allowing lower skilled jobs to be eliminated. Maybe we could see another inversion.

Consumers, Internet and Free. Wikipedia is a great example. It is a massive win for value - expect it does not show in in GNP. In fact, it devastated profitable encyclopedia companies. Thanks to Spotify, et. al. music consumption has increased while revenue has gone down.

Small Companies. German has a large GNP but a small stock market. Why? Mittelstand, or small family owned business.

Management, Entrepreneurs, and Unicorns. There is a difference between the people at the top of Uber and the drivers on the bottom. The 70s was probably the peak the peak in management power. Are we coming back? It used to be that companies had to go public to raise capital for expansion. No so true today. Businesses are remarkable capital light these days. They could stay private.

Government: Raise corporate taxes a bit, so they capture some of that income and growth. Increase defense spending by 1% or 2% of GNP. Nationalize health care. More funding for education. IIRC the 60s space race spending was 2% of our GNP.

[KneePartsPro]

How can someone planning for early retirement, based on index funds income during retirement, plan for such an event? What are some things he/she do before going into retirement, to minimize the financial harm caused by such an event?

abhi764,

I agree with others here who suggest that global diversification is one thing that you can do to protect some of your assets from such an event. Another is allocation across low to negatively correlated assets if there is such a thing. In my opinion, your question is entirely encompassed in the concept of risk tolerance and addressed by proper asset allocation.

Hopefully we never experience "below-inflation returns over periods of even 50 years" in the US Stock Market but I agree that we would be foolish to not consider them a possibility and plan accordingly.

KneePartsPro

[Sandtrap]

Here's a simplistic look at economic growth from my long passed business minded mom who was a very savvy investor in her day.

She explained to me when I was little: "As long as there are more people on the planet, there will be more babies, and more babies mean more diapers and Gerber Baby Food". So if you are invested in the growth of the world, then as long as the world is growing, you're going to be more ahead than if you didn't invest."

For some reason, I've never forgotten that.
Perhaps my mom was an early "boglehead".

j

[Marseille07]

There's no easy answer. Population growth seems loosely tied to equity growth, but what if that also stops? We never know what happens at this point.

[firebirdparts]

There's no easy answer. Population growth seems loosely tied to equity growth, but what if that also stops? We never know what happens at this point.

We do get to watch some other people do it before we do. FWIW. There is a lot to be learned. We're going to need bright people making local decisions, that's the most obvious problem. What do you do with the empty houses in your street? That's so far a more worrisome problem than how investing works.

[Marseille07]

There's no easy answer. Population growth seems loosely tied to equity growth, but what if that also stops? We never know what happens at this point.

We do get to watch some other people do it before we do. FWIW. There is a lot to be learned. We're going to need bright people making local decisions, that's the most obvious problem. What do you do with the empty houses in your street? That's so far a more worrisome problem than how investing works.

Right, I wasn't ranking the importance of issues if / when population growth stops. As you pointed out, all kinds of issues come up and we can case-study those in Japan / Italy etc etc already experiencing the issues.

[dogagility]

Save more, but more importantly, be flexible in your future plans.

[Brianmcg321]

Easy, invest it all n Tesla. That’s never going down.

[CyclingDuo]

IndexFunds investing seems to operate under an assumption that, the market always goes up, and beats inflation in the long run. Hence, buying and holding total stock market kind of index funds, generates wealth over the decades. This assumption is true for markets like US (S&P 500), UK (FTSE) and even India (NIFTY 50) where the indexes are going up ever since their inception. It is not true for some other prominent markets like Japan (NIKKEI 225), China (SZSE)/Shanghai (SSE), where the market oscillates between a high and a low, with below-inflation returns over periods of even 50 years.

So it's possible, that even US and UK markets could flip at some point in future and start oscillating between a high and low. And it might only be evident say 30 years later in the hindsight.

How can someone planning for early retirement, based on index funds income during retirement, plan for such an event? What are some things he/she do before going into retirement, to minimize the financial harm caused by such an event?

It took 25 years for the US market to hit new highs after the 1929 peak. It took 15 years for the Nasdaq to hit new highs after the 2000 peak. So we have had some nice digestion phases in terms of the amount of years it takes following speculative peaks in the US.

The Nikkei hit a speculative high on December 29th of 1989 which is 31 years ago. Hey, give it some more time. The past 8-9 years have been pretty good for the index. It wouldn't surprise some of us if in the next decade it finally hit another new high...

[BogleFan510]

Fair point. You're saying that markets could stop going up but money supply and growth can continue - just not via publicly traded firms. If that occurred, then my counter reaction would not come true (asset prices would not stop rising). However, it's an interesting world where consumers/employees/management (all the same thing) capture monies where their bosses do not. This statement only goes to public firms of course. So truly it'd have to be a world where government and private firms capture wealth growth while public firms are left behind. Hard to see an example of this in the real world... do you have one?

Quite a few. You can start with the national income accounts and see who is earing what. In the US, large public companies have had a growing slice of the pie since the 1980s.

Employees used to take a higher share of the pie. Lots of things happening here, but there has been a shift from low and moderately skilled worked to high skill work. The technological revolutions of the 1920s, 1950s, and 1990s increased the productive of the average worker. You got massive productive boosts by taking away typewriters and adding machines and giving them a networked GUI desktop. Now it is inverted. Technology is improving the productivity of the highly skilled, allowing lower skilled jobs to be eliminated. Maybe we could see another inversion.

Consumers, Internet and Free. Wikipedia is a great example. It is a massive win for value - expect it does not show in in GNP. In fact, it devastated profitable encyclopedia companies. Thanks to Spotify, et. al. music consumption has increased while revenue has gone down.

Small Companies. German has a large GNP but a small stock market. Why? Mittelstand, or small family owned business.

Management, Entrepreneurs, and Unicorns. There is a difference between the people at the top of Uber and the drivers on the bottom. The 70s was probably the peak the peak in management power. Are we coming back? It used to be that companies had to go public to raise capital for expansion. No so true today. Businesses are remarkable capital light these days. They could stay private.

Government: Raise corporate taxes a bit, so they capture some of that income and growth. Increase defense spending by 1% or 2% of GNP. Nationalize health care. More funding for education. IIRC the 60s space race spending was 2% of our GNP.

Excellent post. These trends have been in action for decades.

Expect a lot of the value to flow to consumers (so we [note: by we i mean those with access today, not the institutional poor] all get rich without saving...so grasshoppers rejoice) and for corporate capitalism to be under stress from 'influencer economics' where salary and accumulated wealth is greatly reduced as a necessity and those that influence society extract value in ways outside of the norm. The prime example is a certain branding, influence master who extracted incredible real power, and almost half a billion recently to a legal fund, just from his twitter influence and woven tales.

Personally, I expect very mediocre returns from public markets, but that my personal positioning is fine. Enough wealth, need less as amazing things are virtually free anyway, hiking in public parks, internet connections, and my contacts and network is such that friends will be virtual influence zillionaires. Will gladly pay my taxes so my society remains stable.

It is going to be interesting, but the information economy keymasters will be able to shape society and commerce with increasing power. Powerholders will struggle to retain their traditional barriers to shared power (old school politics, military, etc). Hopefully the influence battles dont tear us apart. Our globally integrated one world economy and financial/monitary system has been a great stabilizing influence.

[deltaneutral83]

It took 25 years for the US market to hit new highs after the 1929 peak.

I think those numbers (I think this is adjusting for inflation as well) are skewed unless you include dividends reinvested which at that time I believe were substantially higher than they are now at <2% annual yield on a TSM/S&P 500 fund. I think year ending 1936 from the start of the great depression gets you close to zero adjusted for inflation adjusted with of course the next decade being nearly 0% return adjusted for inflation with dividends reinvested.

[alex_686]

It took 25 years for the US market to hit new highs after the 1929 peak. It took 15 years for the Nasdaq to hit new highs after the 2000 peak. So we have had some nice digestion phases in terms of the amount of years it takes following speculative peaks in the US.

The Nikkei hit a speculative high on December 29th of 1989 which is 31 years ago. Hey, give it some more time. The past 8-9 years have been pretty good for the index. It wouldn't surprise some of us if in the next decade it finally hit another new high...

2 criticism here.

Not sure which indexes you are using for the US, but... I suspect that you are using the DJIA, which is a price weighted index which has issues. And that you are not counting reinvested dividends. And that you are mixing up different index.

The Nikkei is another very poor index. It is not price weighted nor factors in reinvested dividends. Like the DIJI it is selected by committee and is adjusted every year. What is worse is that it is not "free float" market cap index. While "free float" is a minor issue for the US it is a major issue in Japan with its cross holdings. In particular the period that you are choosing. Lots of issues during the unwind. I don't know of any Japanese index that handles this properly.

[dogagility]

It took 25 years for the US market to hit new highs after the 1929 peak. It took 15 years for the Nasdaq to hit new highs after the 2000 peak. So we have had some nice digestion phases in terms of the amount of years it takes following speculative peaks in the US.

Not sure which indexes you are using for the US, but... I suspect that you are using the DJIA, which is a price weighted index which has issues. And that you are not counting reinvested dividends. And that you are mixing up different index.

Or taking into account deflation that occurred during the 30s. Taking dividends and deflation into account, I believe the picture is better. Not great... but better.

[Scooter57]

Build alternate sources of income that do not depend on the behavior of stock and bond markets that are entirely out of your control.

Every time I post this suggestion here, explaining that slowly building a side business can pay off greatly as you get older, well-paid wage workers respond as if I had suggested taking up base jumping. But building a business organically can pay off very well and give you great security. I am not talking about taking loans and buying some business, but growing something out of whatever it is you enjoy doing and can build some mastery in.

Young workers, especially tech workers, have no idea how easily their high paying jobs can vanish or how short their professional careers may be. Having some kind of back up plan involving an enterprise YOU control that you build slowly during the years when you don't need the money it generates can be a life changer.

[alfaspider]

Build alternate sources of income that do not depend on the behavior of stock and bond markets that are entirely out of your control.

Every time I post this suggestion here, explaining that slowly building a side business can pay off greatly as you get older, well-paid wage workers respond as if I had suggested taking up base jumping. But building a business organically can pay off very well and give you great security. I am not talking about taking loans and buying some business, but growing something out of whatever it is you enjoy doing and can build some mastery in.

Young workers, especially tech workers, have no idea how easily their high paying jobs can vanish or how short their professional careers may be. Having some kind of back up plan involving an enterprise YOU control that you build slowly during the years when you don't need the money it generates can be a life changer.

Fair, but a lot of the resistance flows from that people want to actually retire when they retire. It's a lot harder to wind down a business than simply quit a job.

[JoeRetire]

IndexFunds investing seems to operate under an assumption that, the market always goes up, and beats inflation in the long run.

In the long run, yes.

So it's possible, that even US and UK markets could flip at some point in future and start oscillating between a high and low. And it might only be evident say 30 years later in the hindsight.

Anything is possible.

How can someone planning for early retirement, based on index funds income during retirement, plan for such an event? What are some things he/she do before going into retirement, to minimize the financial harm caused by such an event?

You could get out of the market, if you are very concerned. Or you could adjust the percent of your assets in the market downwards, if somewhat less concerned.

[Horton]

Depends on how you define early retirement. If you want to “retire” before say 55, then find ways to maintain your HUMAN capital in case your FINANCIAL capital becomes impaired. This is particularly true if you retire in your 30s or 40s.

[carlineng]

How can someone planning for early retirement, based on index funds income during retirement, plan for such an event? What are some things he/she do before going into retirement, to minimize the financial harm caused by such an event?

You can't control what happens to the market or your index funds. The only thing you can control is your own behavior. By far the most impactful thing anyone can do is develop good financial habits. Learn to live with reduced consumption, LBYM, etc. https://www.bogleheads.org/wiki/Living_below_your_means

[Godot]

IndexFunds investing seems to operate under an assumption that, the market always goes up, and beats inflation in the long run. Hence, buying and holding total stock market kind of index funds, generates wealth over the decades. This assumption is true for markets like US (S&P 500), UK (FTSE) and even India (NIFTY 50) where the indexes are going up ever since their inception. It is not true for some other prominent markets like Japan (NIKKEI 225), China (SZSE)/Shanghai (SSE), where the market oscillates between a high and a low, with below-inflation returns over periods of even 50 years.

So it's possible, that even US and UK markets could flip at some point in future and start oscillating between a high and low. And it might only be evident say 30 years later in the hindsight.

How can someone planning for early retirement, based on index funds income during retirement, plan for such an event? What are some things he/she do before going into retirement, to minimize the financial harm caused by such an event?

The standard answer is that an early retiree should have a globally diversified portfolio heavily tilted toward equities, at least 70%. Choosing a portfolio with historically low start-date sensitivity might be good. There are 'non-BH approved' approaches that might be helpful too.

Also, one's withdrawals should be flexible, especially as an early retiree.

Since when did the "standard answer" become 70% equities for an early retiree??
Edit: Never mind, I misread "early retiree" and took it to be someone in the early years of being retired, which is not what the OP meant.

[David Jay]

Then I'll be glad I am one of those unknowledgeable, foolish investors that likes companies that pay dividends. I planned my retirement around that possibility. Hence I can live on less than a 1% dividend yield without compromising my standard of living.

Almost any strategy works when one enters retirement with a portfolio that is >100x expenses.

[Scooter57]

Build alternate sources of income that do not depend on the behavior of stock and bond markets that are entirely out of your control.

Every time I post this suggestion here, explaining that slowly building a side business can pay off greatly as you get older, well-paid wage workers respond as if I had suggested taking up base jumping. But building a business organically can pay off very well and give you great security. I am not talking about taking loans and buying some business, but growing something out of whatever it is you enjoy doing and can build some mastery in.

Young workers, especially tech workers, have no idea how easily their high paying jobs can vanish or how short their professional careers may be. Having some kind of back up plan involving an enterprise YOU control that you build slowly during the years when you don't need the money it generates can be a life changer.

Fair, but a lot of the resistance flows from that people want to actually retire when they retire. It's a lot harder to wind down a business than simply quit a job.

You may be forced to retire in your late 40s, long before you are ready for a life of pickleball and grandkids. That was what happened to all the American IT folks I knew who had been doing very well in what they believed were safe jobs in the 1980s.

[alfaspider]

Build alternate sources of income that do not depend on the behavior of stock and bond markets that are entirely out of your control.

Every time I post this suggestion here, explaining that slowly building a side business can pay off greatly as you get older, well-paid wage workers respond as if I had suggested taking up base jumping. But building a business organically can pay off very well and give you great security. I am not talking about taking loans and buying some business, but growing something out of whatever it is you enjoy doing and can build some mastery in.

Young workers, especially tech workers, have no idea how easily their high paying jobs can vanish or how short their professional careers may be. Having some kind of back up plan involving an enterprise YOU control that you build slowly during the years when you don't need the money it generates can be a life changer.

Fair, but a lot of the resistance flows from that people want to actually retire when they retire. It's a lot harder to wind down a business than simply quit a job.

You may be forced to retire in your late 40s, long before you are ready for a life of pickleball and grandkids. That was what happened to all the American IT folks I knew who had been doing very well in what they believed were safe jobs in the 1980s.

Certainly, but I can start a business at that point if I decide wage employment is not viable without trying to juggle a side hustle. I'm an attorney, so I could always hang a shingle if need be. However, the primary plan is to be FI before my late 40s.

[invest2bfree]

IndexFunds investing seems to operate under an assumption that, the market always goes up, and beats inflation in the long run. Hence, buying and holding total stock market kind of index funds, generates wealth over the decades. This assumption is true for markets like US (S&P 500), UK (FTSE) and even India (NIFTY 50) where the indexes are going up ever since their inception. It is not true for some other prominent markets like Japan (NIKKEI 225), China (SZSE)/Shanghai (SSE), where the market oscillates between a high and a low, with below-inflation returns over periods of even 50 years.

So it's possible, that even US and UK markets could flip at some point in future and start oscillating between a high and low. And it might only be evident say 30 years later in the hindsight.

How can someone planning for early retirement, based on index funds income during retirement, plan for such an event? What are some things he/she do before going into retirement, to minimize the financial harm caused by such an event?

Simple Globally diversified portfolio like this protects you-
30% VTI, 30% XSOE, 30% EFG and 10% BND.

If you want to get fancy and include gold then I suggest-
20% VTI, 20% XSOE, 20% EFG and 20% BND 20% GLD

[bck63]

How can someone planning for early retirement, based on index funds income during retirement, plan for such an event? What are some things he/she do before going into retirement, to minimize the financial harm caused by such an event?

Easy: Save enough money such that if investments do not go up that one has enough money to pay expenses that might go up by the rate of inflation.

So say instead of saving $2 million, one might save $6 million before doing the early retirement thing. The math is simple.

Or have the option to go back to work at any time. That'll work as well.

Or reduce expenses.