Would you still jump if you were ready, then the market dropped 50%??

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Johnsson
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Would you still jump if you were ready, then the market dropped 50%??

Post by Johnsson » Thu Nov 08, 2018 7:40 am

Have this thought now and again. We're planning to walk away in ~ 2 years and this is something I'm trying to come to grips with now. With a 55/45 AA we should should have enough to weather most storms.

I think I would still jump (with wobbly knees).

What would you do?

Better yet, did this happen to you and how did it turn out?

Jags4186
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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by Jags4186 » Thu Nov 08, 2018 7:45 am

It’s the great paradox. If you retire and the next day the market drops 50% the 4% rule says you’re safe for 30 years. If the market drops 50% the day before you retire you don’t have enough.

My recommendation is that if a 50% drop ruins your retirement change your AA to the point where it wouldn’t. At 50/50 a 50% drop is 25%. At 40/60 a 50% drop is 20%. That doesn’t include the likelyhood that your bond allocation will rise when the market tanks.

It’s important to oversave so that a big downturn may keep you from doing some of your wants but it can’t affect your needs.

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JoMoney
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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by JoMoney » Thu Nov 08, 2018 7:55 am

Jags4186 wrote:
Thu Nov 08, 2018 7:45 am
It’s the great paradox. If you retire and the next day the market drops 50% the 4% rule says you’re safe for 30 years. If the market drops 50% the day before you retire you don’t have enough...
So I just tried this on PortfolioVisualizer's Monte Carlo Simulator,
A 60/40 portfolio $12,000, withdraw $40 a month inflation adjusted (4%)
97% success rate at 30 years

Then I changed the amount from $12,000 to $8,400 simulating the equities having been cut in half, had a 79% success rate ... not too bad ...
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

AlmstRtrd
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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by AlmstRtrd » Thu Nov 08, 2018 8:13 am

If you were actually living through this, having the probability of your money running out drop from 3% to 21% would definitely be a bad thing. I just retired a few months ago and, honestly, with no more income stream except what I draw from my assets, a 10% correction in the stock market doesn't feel great... and my equity exposure is only 33% or so.

As humans we tend to "anchor" on our NW number and it's a scary thing when it drops significantly. Maybe I'm not being Bogleheady enough, but that's my experience.

quantAndHold
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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by quantAndHold » Thu Nov 08, 2018 8:32 am

Been retired for almost 2 years. If the market dropped 50% tomorrow I would probably be fine. But I would also probably be looking at picking up some new income, because 50% drop sucks up nearly all of my margin for error. Of course if the market dropped 50%, finding work might be a problem for a fifty-something who hasn’t worked in two years.

One of my coworkers in 2009-13 was a guy who had retired in 2007, then came back in 2009. He retired again, for good, in 2015.

KlangFool
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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by KlangFool » Thu Nov 08, 2018 8:50 am

Johnsson wrote:
Thu Nov 08, 2018 7:40 am
Have this thought now and again. We're planning to walk away in ~ 2 years and this is something I'm trying to come to grips with now. With a 55/45 AA we should should have enough to weather most storms.

I think I would still jump (with wobbly knees).

What would you do?

Better yet, did this happen to you and how did it turn out?
Johnsson,

<<we should should have enough to weather most storms.
>>

Why use the word "should"? Can your fixed income portion support at least 5 years of expense? 10 years? 20 years? I had been through many recessions/economy crisis. "Should" is not good enough for me to "Sleep Well At Night" (SWAN). In my opinion, if you are retiring, your fixed income portion should at least support 10 years of expense and your emergency fund should cover 2 years.

<<Better yet, did this happen to you and how did it turn out?>>

I have not retired yet. But, in 2008/2009, my employer laid off 50% of my peers at my location. And, the market crashed. I have 1 year of the emergency fund. At that time, 50% of my portfolio is in the Vanguard Lifestrategy Moderate Growth Fund (60/40) and the other 50% is in the Wellington Fund (65/35). It rebalanced itself. I took myself out of the equation.

Now, 40% of my portfolio is still in the Wellington Fund. Only if the market drops 30% or more, I have to rebalance. This is my main criticism of the 3 funds portfolio. It requires rebalancing. Emotionally, many folks cannot handle this in a bull or bear market.

KlangFool

magneto
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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by magneto » Thu Nov 08, 2018 10:41 am

Lower prices should mostly be a cause for celebration ?
Would begin to re-allocate from defensives (Bonds/Cash/Alts) to risk (Stocks) as a gentle continuing process over months or years. No need to hurry.
And yes, some of our best investments were made is such times.
'There is a tide in the affairs of men ...', Brutus (Market Timer)

yohac
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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by yohac » Thu Nov 08, 2018 10:49 am

Plenty of folks would jump in if it dropped 50% in a day. If it ground down relentlessly over a couple years, with no end in sight, that's a different question. Survival instinct kicks in at some point.

littlebird
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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by littlebird » Thu Nov 08, 2018 10:59 am

We did in late ‘87. Fortunately, the buyer of our home had taken their money out of the market the day before the crash, and we had already purchased our new home for cash. The cash from the old home carried us for quite a while, and we didn’t even consider lowering our expectations for an active early retirement.

DJN
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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by DJN » Thu Nov 08, 2018 11:18 am

In my opinion, if you are retiring, your fixed income portion should at least support 10 years of expense and your emergency fund should cover 2 years.
KlangFool
+1

I share the view that the margin for error is much reduced on the cusp of retirement and I have a similar allowance on the fixed income side for living expenses and for emergency funds + an extra pool of money in property accessible in the longer term as a double up.(That's 22 years without any growth included). I work on the basis that "more is more"! The risk side can take care of itself and if there is a large drop maybe we can look at taking advantage or maybe not. My main emotional concern is to avoid making any hasty decisions. Take as long as I want.

azanon
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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by azanon » Thu Nov 08, 2018 11:36 am

Johnsson wrote:
Thu Nov 08, 2018 7:40 am
Have this thought now and again. We're planning to walk away in ~ 2 years and this is something I'm trying to come to grips with now. With a 55/45 AA we should should have enough to weather most storms.

I think I would still jump (with wobbly knees).

What would you do?

Better yet, did this happen to you and how did it turn out?
With 2 social securities and a pension/SPIA? Yes. Missing the latter? I'd either lower the AA, or buy a SPIA. But that's my risk tolerance.

feh
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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by feh » Thu Nov 08, 2018 11:39 am

The math says it shouldn't matter to us.

Would I still jump? Probably not, but only because my employer makes it easy for me to work part time, which I would do until the dust cleared.

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HomerJ
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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by HomerJ » Thu Nov 08, 2018 11:42 am

JoMoney wrote:
Thu Nov 08, 2018 7:55 am
Jags4186 wrote:
Thu Nov 08, 2018 7:45 am
It’s the great paradox. If you retire and the next day the market drops 50% the 4% rule says you’re safe for 30 years. If the market drops 50% the day before you retire you don’t have enough...
So I just tried this on PortfolioVisualizer's Monte Carlo Simulator,
A 60/40 portfolio $12,000, withdraw $40 a month inflation adjusted (4%)
97% success rate at 30 years

Then I changed the amount from $12,000 to $8,400 simulating the equities having been cut in half, had a 79% success rate ... not too bad ...
This "paradox" occurs because we're assuming that the chance of ANOTHER 50% drop is exactly the same the day AFTER the initial 50% drop.

Which is not true. Market returns aren't independent events.
The J stands for Jay

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HomerJ
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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by HomerJ » Thu Nov 08, 2018 11:43 am

feh wrote:
Thu Nov 08, 2018 11:39 am
The math says it shouldn't matter to us.

Would I still jump? Probably not, but only because my employer makes it easy for me to work part time, which I would do until the dust cleared.
Agreed. Should be fine to still jump, but I probably wouldn't. Even just working another 6-12 months would make a huge difference.
The J stands for Jay

marcopolo
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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by marcopolo » Thu Nov 08, 2018 11:59 am

Johnsson wrote:
Thu Nov 08, 2018 7:40 am
Have this thought now and again. We're planning to walk away in ~ 2 years and this is something I'm trying to come to grips with now. With a 55/45 AA we should should have enough to weather most storms.

I think I would still jump (with wobbly knees).

What would you do?

Better yet, did this happen to you and how did it turn out?
We planned our (early) retirement with fairly conservative assumptions (sub 3% WR, and lots of discretionary expenses) specifically to account for the possibility of this occurring.

If it does come to pass, I am pretty sure we will be OK through a combination of reducing discretionary spending and using a slightly higher WR.

I am not a huge believer in tight correlation between valuation and forward expected returns, but i do think a 50% drop would likely create an environment where a higher WR could be supported relative to current valuations. See this thread for a brief discussion of this:
(viewtopic.php?f=1&t=204546&p=3135706#p3135706)
Once in a while you get shown the light, in the strangest of places if you look at it right.

randomguy
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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by randomguy » Thu Nov 08, 2018 12:31 pm

Jags4186 wrote:
Thu Nov 08, 2018 7:45 am
It’s the great paradox. If you retire and the next day the market drops 50% the 4% rule says you’re safe for 30 years. If the market drops 50% the day before you retire you don’t have enough.

My recommendation is that if a 50% drop ruins your retirement change your AA to the point where it wouldn’t. At 50/50 a 50% drop is 25%. At 40/60 a 50% drop is 20%. That doesn’t include the likelyhood that your bond allocation will rise when the market tanks.

It’s important to oversave so that a big downturn may keep you from doing some of your wants but it can’t affect your needs.
Problem is when you drop your AA enough to make a difference, your success rate starts dropping. You go from 95% at 50/40 to 87% at 30/70. You can try and get some of the success back with rising equity (bond tents and the like) glide paths.

Reality most people would put off retirement 6-12 months to see what will happen. People that have retired will likely postpone some optional spending (kitchen remodels, european vacation). Now these are all thing that don't have to be done as the 4% rule is already conservative and has factored events like 50% drops in but human nature is what human nature is and most people tend to get more conservative when they hear bad news.

And to some extent you have to think about getting to -50%. Both 2000-2 and 2007-9 had huge drops. but they played out a lot different with 2000 being a slow crash over 3 years where 2007-9 basically had 6 exciting months.

Johnsson
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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by Johnsson » Thu Nov 08, 2018 4:06 pm

KlangFool wrote:
Thu Nov 08, 2018 8:50 am
Why use the word "should"? Can your fixed income portion support at least 5 years of expense? 10 years? 20 years? I had been through many recessions/economy crisis. "Should" is not good enough for me to "Sleep Well At Night" (SWAN). In my opinion, if you are retiring, your fixed income portion should at least support 10 years of expense and your emergency fund should cover 2 years.
Assuming no major events we will have 7 yrs of cash and another 14 yrs of bonds. We'll only be 59, so 11 yrs to SS. Should be in great shape.

BUT... nobody can EVER say for sure. Who know what tomorrow will bring.

We should be OK.

KlangFool
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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by KlangFool » Thu Nov 08, 2018 4:12 pm

Johnsson wrote:
Thu Nov 08, 2018 4:06 pm
KlangFool wrote:
Thu Nov 08, 2018 8:50 am
Why use the word "should"? Can your fixed income portion support at least 5 years of expense? 10 years? 20 years? I had been through many recessions/economy crisis. "Should" is not good enough for me to "Sleep Well At Night" (SWAN). In my opinion, if you are retiring, your fixed income portion should at least support 10 years of expense and your emergency fund should cover 2 years.
Assuming no major events we will have 7 yrs of cash and another 14 yrs of bonds. We'll only be 59, so 11 yrs to SS. Should be in great shape.

BUT... nobody can EVER say for sure. Who know what tomorrow will bring.

We should be OK.
Johnsson,

Yes, we cannot be prepared for everything. But, if you are prepared for more than 10 years and you still have a problem, it is no longer a money problem. Do you have enough physical gold to get yourself to somewhere else? This is what I do. It is part of my plan.

KlangFool

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Phineas J. Whoopee
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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by Phineas J. Whoopee » Thu Nov 08, 2018 4:25 pm

If I weren't prepared for a 50%+ drop in the stock market at any time I wouldn't be ready.
PJW

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dogagility
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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by dogagility » Thu Nov 08, 2018 4:55 pm

If I were retired with a significant allocation to fixed income and then market dropped 50%... I would be hard-pressed not to re-allocate a significant chunk of my fixed income allocation to equity.
Taking "risk" since 1995.

PFInterest
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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by PFInterest » Thu Nov 08, 2018 4:56 pm

Johnsson wrote:
Thu Nov 08, 2018 7:40 am
Have this thought now and again. We're planning to walk away in ~ 2 years and this is something I'm trying to come to grips with now. With a 55/45 AA we should should have enough to weather most storms.

I think I would still jump (with wobbly knees).

What would you do?

Better yet, did this happen to you and how did it turn out?
yes unless i was old

jalbert
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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by jalbert » Thu Nov 08, 2018 5:07 pm

It’s the great paradox. If you retire and the next day the market drops 50% the 4% rule says you’re safe for 30 years. If the market drops 50% the day before you retire you don’t have enough.
There’s not really any paradox. The 4% rule gives you a high probability of success. It does not guarantee success. If the market crashes on the day after you retire and no longer are working, that is a highly unfavorable outcome. But it does not change what the probability of success was the day before.
Risk is not a guarantor of return.

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willthrill81
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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by willthrill81 » Thu Nov 08, 2018 5:08 pm

HomerJ wrote:
Thu Nov 08, 2018 11:42 am
JoMoney wrote:
Thu Nov 08, 2018 7:55 am
Jags4186 wrote:
Thu Nov 08, 2018 7:45 am
It’s the great paradox. If you retire and the next day the market drops 50% the 4% rule says you’re safe for 30 years. If the market drops 50% the day before you retire you don’t have enough...
So I just tried this on PortfolioVisualizer's Monte Carlo Simulator,
A 60/40 portfolio $12,000, withdraw $40 a month inflation adjusted (4%)
97% success rate at 30 years

Then I changed the amount from $12,000 to $8,400 simulating the equities having been cut in half, had a 79% success rate ... not too bad ...
This "paradox" occurs because we're assuming that the chance of ANOTHER 50% drop is exactly the same the day AFTER the initial 50% drop.

Which is not true. Market returns aren't independent events.
Bingo. A 50% market decline is far less likely to happen if the market has already dropped by 50%. Further, everything else held equal, lower stock prices means higher expected returns going forward.

This is a noted problem with most Monte Carlo simulations. They model the likelihood of a market drop as being independent of when the last market drop was. This leads to situations that are pretty apocalyptic, like the market dropping by 20%, then 50%, then 30%, etc. Note that they also do this on the upside, although we're not typically too worried about that end of the spectrum.
Last edited by willthrill81 on Thu Nov 08, 2018 5:12 pm, edited 1 time in total.
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dknightd
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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by dknightd » Thu Nov 08, 2018 5:09 pm

I have my date picked. I have not handed in the official letter yet, so I could change my mind.
If the market dropped 50% between now and my date, I'd almost certainly retire as planned.
I'm currently 25/25/50 stock/binds/cashlike. The cash like funds are to get me to SS (I probably use some to buy an annuity)

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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by RadAudit » Thu Nov 08, 2018 5:52 pm

I've been retired for eight years. Back then, I probably would of jumped in. However, thanks (?) to this forum, since then I've come across a few ideas that weren't on the radar at that time - you know, like planning :oops:

Now, I wouldn't retire unless I had a sufficient number of years of residual living expenses in bonds. (You get to choose the number of years.) Additionally, in retirement, I wouldn't sell stocks at a loss {from the time of retirement} to rebalance the portfolio (McClung [?]). Since in the situation you outlined you just retired, the stocks are at a 50% loss from the time of retirement, So, now, no I wouldn't jump in. I'd live off the bonds as long as necessary - and then stocks if I had to - and then rebalance when stocks recovered. (It's in the IPS).

And no, a 50% drop after retirement hasn't happened to me yet - so, maybe it's all just on paper.
Last edited by RadAudit on Thu Nov 08, 2018 6:20 pm, edited 1 time in total.
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The Calvary isn't coming, kids. You are on your own.

Jags4186
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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by Jags4186 » Thu Nov 08, 2018 6:10 pm

jalbert wrote:
Thu Nov 08, 2018 5:07 pm
It’s the great paradox. If you retire and the next day the market drops 50% the 4% rule says you’re safe for 30 years. If the market drops 50% the day before you retire you don’t have enough.
There’s not really any paradox. The 4% rule gives you a high probability of success. It does not guarantee success. If the market crashes on the day after you retire and no longer are working, that is a highly unfavorable outcome. But it does not change what the probability of success was the day before.
It does change the probability because you now have to survive 2 days longer :wink:

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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by KyleAAA » Thu Nov 08, 2018 6:16 pm

It would depend on how much slack I had in my budget. If I was planning on taking 4% but could get by on 2%, maybe. I would weigh the prospect of working a few extra years vs living with a permanently lower income. If I had no slack in my budget and I NEEDED 4% of the original amount, then no.

jalbert
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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by jalbert » Thu Nov 08, 2018 10:18 pm

Jags4186 wrote:
Thu Nov 08, 2018 6:10 pm
jalbert wrote:
Thu Nov 08, 2018 5:07 pm
It’s the great paradox. If you retire and the next day the market drops 50% the 4% rule says you’re safe for 30 years. If the market drops 50% the day before you retire you don’t have enough.
There’s not really any paradox. The 4% rule gives you a high probability of success. It does not guarantee success. If the market crashes on the day after you retire and no longer are working, that is a highly unfavorable outcome. But it does not change what the probability of success was the day before.
It does change the probability because you now have to survive 2 days longer :wink:
The probability on the day you retired is whatever it is. The outcome may be poor, but the original probability on the day you retired is whatever it was.

Now, after the market crash in day 1, your probability of success dropped into the toilet. This scenario could be modeled before you retire as the conditional probability of success conditioned on the event that the market crashes 50% the first day of retirement.

Before you retire, this conditional probability of success is much lower than the unconditional probability of success.
Risk is not a guarantor of return.

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tennisplyr
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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by tennisplyr » Fri Nov 09, 2018 8:02 am

This is a good tool for guesstimating various catastrophes.

https://www.retirementsimulation.com/
Those who move forward with a happy spirit will find that things always work out.

longinvest
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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by longinvest » Fri Nov 09, 2018 10:09 am

Johnsson wrote:
Thu Nov 08, 2018 7:40 am
Have this thought now and again. We're planning to walk away in ~ 2 years and this is something I'm trying to come to grips with now. With a 55/45 AA we should should have enough to weather most storms.

I think I would still jump (with wobbly knees).

What would you do?

Better yet, did this happen to you and how did it turn out?
A 50% stock drop and its impact on retirement income is already accounted for in my (far in the future) retirement plan:
Variable Percentage Withdrawal (VPW-adv) for Advanced Users
Bogleheads investment philosophy | Lifelong Portfolio: 25% each of (domestic/international) stocks / (nominal/inflation-indexed) long-term bonds | VCN/VXC/VLB/ZRR

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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by Johnsson » Fri Nov 09, 2018 7:02 pm

KlangFool wrote:
Thu Nov 08, 2018 4:12 pm
Yes, we cannot be prepared for everything. But, if you are prepared for more than 10 years and you still have a problem, it is no longer a money problem. Do you have enough physical gold to get yourself to somewhere else? This is what I do. It is part of my plan.
Finances/the numbers are one thing, the psychological intimidation of such a drop is what is most concerning. How do we know that the market coming back? Changes in our government/economy could keep us a low levels for many years like Japan. Even the wealthier could have issues.

We have some gold, who knows if it would be enough. Being truly diversified beyond equities and bonds requires some thought and planning...

KlangFool
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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by KlangFool » Fri Nov 09, 2018 8:29 pm

Johnsson wrote:
Fri Nov 09, 2018 7:02 pm
KlangFool wrote:
Thu Nov 08, 2018 4:12 pm
Yes, we cannot be prepared for everything. But, if you are prepared for more than 10 years and you still have a problem, it is no longer a money problem. Do you have enough physical gold to get yourself to somewhere else? This is what I do. It is part of my plan.
Finances/the numbers are one thing, the psychological intimidation of such a drop is what is most concerning. How do we know that the market coming back? Changes in our government/economy could keep us a low levels for many years like Japan. Even the wealthier could have issues.

We have some gold, who knows if it would be enough. Being truly diversified beyond equities and bonds requires some thought and planning...
Johnsson,

<<How do we know that the market coming back?>>

We don't. But, I am prepared for that.

<< Changes in our government/economy could keep us a low levels for many years like Japan. Even the wealthier could have issues.>>

I was in Asia during the Asian Currency Crisis. I get out of Asia when it did not recover.

<<We have some gold, who knows if it would be enough. Being truly diversified beyond equities and bonds requires some thought and planning...>>

My family is spread across 30+ countries in the world.

<<Finances/the numbers are one thing, the psychological intimidation of such a drop is what is most concerning. >>

Houston Oil Bust, Texas Saving & Loan Crisis, Asian Currency Crisis, Telecom Bust, 2008/2009 great recession. I had experienced all of them across 30+ years. I was unemployed for more than 1 year a few times too. I invest based on the expectation of a drop is possible at any time.

KlangFool

brennok
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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by brennok » Fri Nov 09, 2018 10:12 pm

I agree with a poster above. If my planned number was 4% but knew I could easily survive at 2% I doubt it would change anything. This is assuming I am retiring because I am burned out or hate my job though. If I could easily see myself working at the same place for another year or so I would opt to stay assuming it was feasible.

Unfortunately for me since I am looking at over 30 years I would be looking at 2% and dropping to 1% would be tight especially without knowing what insurance would run me. 2% currently is close to my salary and if I left the workforce it would be much more difficult to reenter since I dont have a trade or higher education to fall back on which these days is more and more a requirement.

random_walker_77
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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by random_walker_77 » Fri Nov 09, 2018 10:32 pm

willthrill81 wrote:
Thu Nov 08, 2018 5:08 pm
HomerJ wrote:
Thu Nov 08, 2018 11:42 am
JoMoney wrote:
Thu Nov 08, 2018 7:55 am
Jags4186 wrote:
Thu Nov 08, 2018 7:45 am
It’s the great paradox. If you retire and the next day the market drops 50% the 4% rule says you’re safe for 30 years. If the market drops 50% the day before you retire you don’t have enough...
So I just tried this on PortfolioVisualizer's Monte Carlo Simulator,
A 60/40 portfolio $12,000, withdraw $40 a month inflation adjusted (4%)
97% success rate at 30 years

Then I changed the amount from $12,000 to $8,400 simulating the equities having been cut in half, had a 79% success rate ... not too bad ...
This "paradox" occurs because we're assuming that the chance of ANOTHER 50% drop is exactly the same the day AFTER the initial 50% drop.

Which is not true. Market returns aren't independent events.
Bingo. A 50% market decline is far less likely to happen if the market has already dropped by 50%. Further, everything else held equal, lower stock prices means higher expected returns going forward.

This is a noted problem with most Monte Carlo simulations. They model the likelihood of a market drop as being independent of when the last market drop was. This leads to situations that are pretty apocalyptic, like the market dropping by 20%, then 50%, then 30%, etc. Note that they also do this on the upside, although we're not typically too worried about that end of the spectrum.
While I agree w/ the gist of willthrill81 and HomerJ's point, I take exception w/ the 20%+50%+30% drop being apocalyptic and unrealistic. See Taylor's post about the great depression and its sequence of -31%, -25%, -43%, -8% returns from '29-'32: viewtopic.php?f=9&t=143500&start=50#p2590032

Regarding the OP's question, I'd be tempted to hang on a little longer hoping to volunteer for a layoff package

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willthrill81
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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by willthrill81 » Fri Nov 09, 2018 10:39 pm

random_walker_77 wrote:
Fri Nov 09, 2018 10:32 pm
willthrill81 wrote:
Thu Nov 08, 2018 5:08 pm
HomerJ wrote:
Thu Nov 08, 2018 11:42 am
JoMoney wrote:
Thu Nov 08, 2018 7:55 am
Jags4186 wrote:
Thu Nov 08, 2018 7:45 am
It’s the great paradox. If you retire and the next day the market drops 50% the 4% rule says you’re safe for 30 years. If the market drops 50% the day before you retire you don’t have enough...
So I just tried this on PortfolioVisualizer's Monte Carlo Simulator,
A 60/40 portfolio $12,000, withdraw $40 a month inflation adjusted (4%)
97% success rate at 30 years

Then I changed the amount from $12,000 to $8,400 simulating the equities having been cut in half, had a 79% success rate ... not too bad ...
This "paradox" occurs because we're assuming that the chance of ANOTHER 50% drop is exactly the same the day AFTER the initial 50% drop.

Which is not true. Market returns aren't independent events.
Bingo. A 50% market decline is far less likely to happen if the market has already dropped by 50%. Further, everything else held equal, lower stock prices means higher expected returns going forward.

This is a noted problem with most Monte Carlo simulations. They model the likelihood of a market drop as being independent of when the last market drop was. This leads to situations that are pretty apocalyptic, like the market dropping by 20%, then 50%, then 30%, etc. Note that they also do this on the upside, although we're not typically too worried about that end of the spectrum.
While I agree w/ the gist of willthrill81 and HomerJ's point, I take exception w/ the 20%+50%+30% drop being apocalyptic and unrealistic. See Taylor's post about the great depression and its sequence of -31%, -25%, -43%, -8% returns from '29-'32: viewtopic.php?f=9&t=143500&start=50#p2590032

Regarding the OP's question, I'd be tempted to hang on a little longer hoping to volunteer for a layoff package
It's not that consecutive years of very poor returns are not possible, because we know that they are. But there are sequences of returns predicted by Monte Carlo simulations that are worse than that of the Great Depression. If you try to prepare to deal with a situation where stocks lose 90% of their value and stay that way for years, you're going to have to be hyper-conservative.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

random_walker_77
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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by random_walker_77 » Fri Nov 09, 2018 10:52 pm

willthrill81 wrote:
Fri Nov 09, 2018 10:39 pm

It's not that consecutive years of very poor returns are not possible, because we know that they are. But there are sequences of returns predicted by Monte Carlo simulations that are worse than that of the Great Depression. If you try to prepare to deal with a situation where stocks lose 90% of their value and stay that way for years, you're going to have to be hyper-conservative.
I'll agree entirely to that.

I suppose my point isn't really aimed at you then; I've been hypersensitized that some have the misconception that a bad market is at worst a 50% haircut to stocks (as seen in some "going 100% into stocks" threads), and couldn't help zeroing on your specific example sequence. :beer

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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by willthrill81 » Fri Nov 09, 2018 11:27 pm

random_walker_77 wrote:
Fri Nov 09, 2018 10:52 pm
willthrill81 wrote:
Fri Nov 09, 2018 10:39 pm

It's not that consecutive years of very poor returns are not possible, because we know that they are. But there are sequences of returns predicted by Monte Carlo simulations that are worse than that of the Great Depression. If you try to prepare to deal with a situation where stocks lose 90% of their value and stay that way for years, you're going to have to be hyper-conservative.
I'll agree entirely to that.

I suppose my point isn't really aimed at you then; I've been hypersensitized that some have the misconception that a bad market is at worst a 50% haircut to stocks (as seen in some "going 100% into stocks" threads), and couldn't help zeroing on your specific example sequence. :beer
I totally agree with you as well. I'm not aware of any major economies whose stock market hasn't experienced a greater than 50% drop at some point; 70% or greater has been closer to the norm. And while it hasn't happened in the U.S., there is the distinct possibility that nominal bonds could go through another deep drawdown in real dollars such as what happened from 1977-1981 (intermediate-term Treasuries had a real drawdown of over 30%) at the same time. That means that even a 'conservative' AA of 50/50 could see a real drawdown of 50%. Frankly, I don't think that even most Bogleheads are prepared to sit tight through that kind of an event.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Tamarind
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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by Tamarind » Sat Nov 10, 2018 7:40 am

If I had already moved into my planned retirement AA (50/50) when the drop came, then absolutely I would. If I hadn't yet, I probably still would jump but would be likely to err on the low side for expenses for a couple of years.

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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by MnD » Sun Nov 11, 2018 10:35 am

Retiring in 19 days at age 56, 70/30 with global market cap on equities and yes, I'd still retire if the global equity market declined 50% between now and November 30, 2018. Under our withdrawal plan (% of annual portfolio balance) our gross income would drop by 18.5% with a smaller percentage than that drop in after-tax income and we'd still have a very comfortable retirement.

Portfolio at the current balance will provide 52% of our income with safe non-portfolio based income streams providing 48%, very low fixed/mandatory expenses and zero debt - most of our spending is very discretionary and non-frugal so a roughly 15% hit on after-tax income would be relatively easy to adjust to. Also recalling 2000/02 and 2008-2009, many things we prioritize spending money on got a lot cheaper with millions of people and innumerable businesses in desperate financial situations, so there's that effect too.

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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by lostdog » Sun Nov 11, 2018 2:12 pm

I'll go get a part time job during a bear so I can add more.

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Re: Would you still jump if you were ready, then the market dropped 50%??

Post by heyyou » Sun Nov 11, 2018 3:53 pm

Would you still jump if you were ready, then the market dropped 50%??
I wouldn't be brave enough, but with our WD based on each recent annual portfolio balance, if the WD was still enough to suit the two of us, I would definitely consider retiring. Having retired in late 2005, we had more confidence about our retirement spending by the 2008-09 troubles, but we did welcome the quick recovery.

McClung uses relative stock valuations to slightly modify his initial WD percentage then applies the % to each recent annual portfolio balance.

That adapting to current conditions seems so much more sensible than relying on a mere hundred year history of success for the next specific 30 consecutive ones. The key to the above is to keep your necessary spending below your WD rate. That was easy for us since we just enjoyed having leisure time uninterrupted by having to go to work.

We had a pension that was almost enough to keep us in food and shelter. How expensive is a ten year fixed-term annuity for those basics for a new retiree's first decade, since the stock market is sky high? Might be cheaper to just do a ten year bond ladder, then re-retire after that initial decade. McClung also suggests only spending from bonds at the start of retirement, beginning with a near 50/50 allocation, so there is another buffer for a stock crash after the first month of retiring. Those bond fund holdings would last for over a decade while waiting for the stocks to recover.

As usual, if both of you are open to adapting, you will be okay if hard times occur early in retirement.

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