The Money Mustache Community
General Discussion => Welcome and General Discussion => Topic started by: dude on October 15, 2014, 09:40:50 AM
-
With the S&P now down 9+% from its mid-September high, and having erased all 2014 gains as of today's trading (though of course, still some hours to go), are any recent Early Retirees out there growing concerned about the impact of this adverse sequence of returns? If not, why not? Did you hedge against it in some way? (i.e., cash reserve, pt job, scaled down expenses)
-
No, not freaking out, but I'm cheating*. But even if I wasn't cheating, I'd like to believe I would have seen this as a routine event for the markets and not change anything. I have enough diversity and safety margins that I think I could have weathered things all right. If I wasn't cheating, I might have turned some hobbies into income in order to reduce withdrawals.
* I took a sabbatical as a test run for FIRE, with the idea that when the year was up I'd decide whether to make retirement permanent or go back to work for some time. Independent of recent market events, I had concluded that when my sabbatical was up, I was going back for a short time in order to maximize my pension benefits. This downturn will just make it an even easier decision to go back for a short time in order to avoid withdrawals during a down market. I highly recommend folks considering FIRE'ing to take a sabbatical first if their employers offer it, if they feel they need that extra safety parachute.
-
You're not really claiming that a flat market over 10 months is a sequence of returns problem, right? That's kind of silly.
-
No, of course not, but the a down year could be the start, and many signs point to deflationary pressures worldwide that would limit the Central Banks' ability to respond, and thus make it a prolonged phenomenon. Not to mention that there are many whose prevailing sentiment is that future returns are not likely to mirror past returns, namely, that a 3-4% net return is likely to be the norm.
Yeah, of course it could turn out totally different, but Japan's experience with deflation is instructive.
We'll see. But regardless, I'm sure there are more than a few people who retired this year who are now sweating a little bit.
-
If a small drop in the market like this has you concerned you really need to reconsider your FIRE plans. Markets go up and go down.....I really hope people don't think the last 5 years will remain forever.
I tend to think many folks on this site over estimate what they will need into the future. Retiring at 35 with $1M invested 100% in the market is a stretch I'm afraid.
To me, being FIRE means to be void of concern of market swings and corrections for the rest of your life
-
I am planning to FIRE in January. While I am not "freaking out" I am not really happy about the downturn, who would be? I am currently down roughly 4.5% from the peak. On the other hand I have a fairly large cash position and am looking forward to putting that money to work during the inevitable rebound.
-
I'm 10 years away from FIRE and still I see my investments sliding and it makes me sad. We have had a good ride and it looks like it may be coming to and end.
-
I Retired on the 1st September - but as I live on dividends I am way more interested in those than the share price. One is based on fact, the other is sentiment driven. That said I have made a couple of small shares purchases - always a good idea when things are on sale.
-
If a small drop in the market like this has you concerned you really need to reconsider your FIRE plans. Markets go up and go down.....I really hope people don't think the last 5 years will remain forever.
+1
-
Our investments have lost about $50k in the past three months as of last week (I decided not to look at them anymore for at least a few more weeks). This is the first time I've tracked everything consistently so I don't have a sense of whether this is normal -- I'm assuming it is? There was a huge gain in July preceding these drops.
(I'm retired at 57, DH is not at 55, so we have no need to dip into these funds at all for a while.)
-
Our investments have lost about $50k in the past three months as of last week (I decided not to look at them anymore for at least a few more weeks). This is the first time I've tracked everything consistently so I don't have a sense of whether this is normal -- I'm assuming it is? There was a huge gain in July preceding these drops.
(I'm retired at 57, DH is not at 55, so we have no need to dip into these funds at all for a while.)
What percentage of your portfolio is 50k? 50k doesn't mean much in itself without a baseline.
-
I'm 10 years away from FIRE and still I see my investments sliding and it makes me sad. We have had a good ride and it looks like it may be coming to and end.
It should make you happy. You're now able to purchase more shares for the same amount of money.
-
I'm 10 years away from FIRE and still I see my investments sliding and it makes me sad. We have had a good ride and it looks like it may be coming to and end.
It should make you happy. You're now able to purchase more shares for the same amount of money.
I put my play money on the sidelines when the S&P hit 2000 and more and more people started sounding the correction gongs. (Yeah, yeah, I hears ya, don't time the market, but this is my "play money" and not my 401K and my play money keeps beating the S&P over time, so....) All I see are stocks going on sale. I am close to jumping back in.
-
I'm 10 years away from FIRE and still I see my investments sliding and it makes me sad. We have had a good ride and it looks like it may be coming to and end.
It should make you happy. You're now able to purchase more shares for the same amount of money.
Agreed. My middle-of-the-month 401(k) contribution is coming in, and I'm ecstatic to see that the market has dropped. I hope it stays down long enough for me to invest my month-end paycheck as well (not that I wouldn't invest if the market rose).
-
Our investments have lost about $50k in the past three months as of last week (I decided not to look at them anymore for at least a few more weeks). This is the first time I've tracked everything consistently so I don't have a sense of whether this is normal -- I'm assuming it is? There was a huge gain in July preceding these drops.
(I'm retired at 57, DH is not at 55, so we have no need to dip into these funds at all for a while.)
What percentage of your portfolio is 50k? 50k doesn't mean much in itself without a baseline.
Total is about $1.65 million.
-
Our investments have lost about $50k in the past three months as of last week (I decided not to look at them anymore for at least a few more weeks). This is the first time I've tracked everything consistently so I don't have a sense of whether this is normal -- I'm assuming it is? There was a huge gain in July preceding these drops.
(I'm retired at 57, DH is not at 55, so we have no need to dip into these funds at all for a while.)
What percentage of your portfolio is 50k? 50k doesn't mean much in itself without a baseline.
Total is about $1.65 million.
Then don't worry too much about it (although I can imagine the mental feeling of losing 50k without perspective), as you're fine and this is pretty standard in today's relatively volatile market. I would have questioned the diversification of your assets if you said something along the lines of 750k, but at that number just ride the waves even though it might not always be fun.
-
I don't need the Vanguard funds to live on, so I don't really care what they do. I'll just keep investing steadily. I don't keep a huge cash cushion, but I can handle any foreseeable house maintenance expenses--my worst fear is that I'll have to replace the heating/cooling system, but even that is not a prob. I'm just going to run VTSAX 80% and the Total Bond Admiral at 20% and let 'er roll.
-
I am getting a bonus at work on the 30th of about $400. Put the after tax into my Roth IRA today and got 4 shares of VTI. Decided down 8% was a good enough sale to stick the bonus in. Otherwise I would have added it to the e-fund. I will not be able to max my IRA this year without sacrificing the all important e-fund. Not maxing the IRA is not an emergency like not having an emergency fund is!
-
Retired in August. Not freaking out. Diversification helps.
-
With the thread title about recent FIREee's, I'm confused by those who are posting that they're giddy because they're still putting money into their 401k's.
One year in to FIRE, and we're still up year over year (helped, no doubt, by a small inheritance), but down almost 10% from the high. Our cash on hand is enough to sustain us a few years regardless. Certainly not selling anything, but not using that cash to buy, either.
-
Not quite RE yet, but planning to in the next couple of years. Apart from investment properties, I'm sitting in cash for the moment (earning 3.8%pa). My current motto is 'winning by not losing'.
-
any recent Early Retirees out there growing concerned about the impact of this adverse sequence of returns? If not, why not? Did you hedge against it in some way? (i.e., cash reserve, pt job, scaled down expenses)
Government defined benefits pension, cash, paid off house and very low income needs (can get by on about $500/month). So unless the zombie apocalypse happens and the government shut down, I'll probably be Ok no matter what happens. I do worry about another housing crash though as I will be selling and downsizing soon and that would hurt but not really impact my ER much.
-
Diversity is key when you fire. I'm down about 70K at the moment. I could give a rats azz. I'm still working a 6 figure job and I'll be buying cheaper. Fire is 3 years out.
-
I'm 10 years away from FIRE and still I see my investments sliding and it makes me sad. We have had a good ride and it looks like it may be coming to and end.
On the positive side, you still own the same amount of company. It's key to see it as an opportunity, and invest more. From my vantage point a multi-year bear market would be fantastic, continue to stock up on shares and reap rewards down the road.
-
Diversity is key when you fire. I'm down about 70K at the moment. I could give a rats azz. I'm still working a 6 figure job and I'll be buying cheaper. Fire is 3 years out.
But if you were already FIRE'd and not earning that 6 figure income would you feel differently about losing a big chunk of the stash (or maybe all of it)?
-
No sense worrying about what ifs. 10 months of no gains is nothing close to a sequence of returns problem.
Now, if you are running under projections in 10 years... then its time to worry.
One of the things I'm looking forward to in FIRE is an info diet. I don't want to know what the market is doing day to day or even month to month. I have to know now for my job, but that's something I'll gladly give up. A once a year checkin should be fine for me.
-
No, of course not, but the a down year could be the start, and many signs point to deflationary pressures worldwide that would limit the Central Banks' ability to respond, and thus make it a prolonged phenomenon. Not to mention that there are many whose prevailing sentiment is that future returns are not likely to mirror past returns, namely, that a 3-4% net return is likely to be the norm.
Technically if there is deflation and you get a 3%-4% return (and you are trying to get 4% net of inflation) you should be ok.
I personally think that fear of deflation is overblown mainly due to the medias. If you run firecalc for the period of 1873 to 1896, during the great deflation, you end up better than ok. I started with 1m and 40k withdrawal and I end up with 3.5m€ in 1896 which correspond to a real return of a little more than 9.5% a year, which is a return of 8% and inflation of -1,5%.
-
No sense worrying about what ifs. 10 months of no gains is nothing close to a sequence of returns problem.
Right, I get that, but my point is, if you are a recent retiree, your worst fear (or at least mine would be) is an adverse sequence of returns in the early years of your retirement (the effect on one's portfolio is well-documented). So while the current situation is by no means a sign that such a thing is happening or will happen, I would think that for any recent retiree, it's GOT to be in the back of their minds (I know it would be in mine; shit, it would be in the front of mine!). So I was just curious as to how recent retirees were handling this current downturn. We've all been hearing for three years now -- incorrectly -- that valuations were too high and that the market was overdue for a correction, and now that's happening. It may be temporary, but there are troubling signs, especially in Europe, that it may not be and that rather, it could be a lasting phenomenon. If I were a recent retiree, I know the fundamentals of the current global economic situtation -- lots of signs screaming deflation -- would be a bit concerning to me, though I'm not sure I'd take any concrete action. I've got a 4.5 - 6 year window for retirement, so I'm not overly concerned about the big picture right now, though I always wince a bit when I lose 5-figures in less than a month!
-
Not freakin' out, but a bit cranky about it all. I collect dividends to cover living expenses, so as long as company dividends are not cut, I try not to get worked up about dropping share prices. If things went badly enough that business started to cut payouts, then I would start to get concerned.
I'm about a month into ER, and it looks like like October spending is coming in much lower than I thought, so that is a comfort. Expenses look to be just a bit about 2k, while dividends total around 4k. So there is a nice buffer there.
And there is my wonderful BIF (Betrothed Income Fund = WIFE) which brings in over 5k monthly. So we are still able to save around 7k monthly, so really I should be welcoming an opportunity to buy more dividend payers while on sale.
Though I hate to see net worth drop (and boy, has it ever), monthly cash flow is still very good.
Our ultimate goal is to create a dividend income stream large enough that my wife feels secure enough to join me in retirement. She doesn't want to live ultra frugally in retirement, whereas I have absolutely no problem with it.
-
With the S&P now down 9+% from its mid-September high, and having erased all 2014 gains as of today's trading (though of course, still some hours to go), are any recent Early Retirees out there growing concerned about the impact of this adverse sequence of returns? If not, why not? Did you hedge against it in some way? (i.e., cash reserve, pt job, scaled down expenses)
One somewhat capricious hedge was VXX. I started buying it 3 months ago, and just sold the position for a 1.5k profit. Also 8% of net worth is cash and another 8% lending club / bond funds. 45% in RE. So, overall not too worried.
The news headlines are entertaining. They change so quickly from 'this up market will forever be sunshine, unicorns and rainbows' to '3 reasons why we're nowhere near the bottom' and '5 ways to prepare for doom.'
-
A bit off topic, but what kind of diversification would help in this situation? I'm not retired and have all my investments in Vanguard funds, about 75% stock index and 25% bond index. I have not looked into dividend-focused investing.
I posted before Malaysia41's last post. That's some good info!
-
I view the market like a rollercoaster. There's anticipation when it goes up, but it's only ever exciting when you get to the drops!
-
Again, if you're not prepared to handle market busts like 2002 and 2008 you're not ready to retire. Stay the course
-
When the market tanks don't spend any more than necessary. Beans and rice till the recovery. Use your cash to buy, buy, buy stocks at a discount.
-
A bit off topic, but what kind of diversification would help in this situation?
Just one data point: The Permanent Portfolio (specifically the Harry Browne version) is up 7% on the year and has been immune to the recent stock market rollercoaster ride. That same return turns some people off when stocks are doing great, but on days like yesterday it looks a lot more appealing. If market gyrations seriously stress you out, it's worth a look.
There are other good diversification options out there as well (dividend growth, real estate, etc). Going all-in on stocks is a lot less common than one might think from reading these boards sometimes.
-
A bit off topic, but what kind of diversification would help in this situation?
Just one data point: The Permanent Portfolio (specifically the Harry Browne version) is up 7% on the year and has been immune to the recent stock market rollercoaster ride. That same return turns some people off when stocks are doing great, but on days like yesterday it looks a lot more appealing. If market gyrations seriously stress you out, it's worth a look.
There are other good diversification options out there as well (dividend growth, real estate, etc). Going all-in on stocks is a lot less common than one might think from reading these boards sometimes.
Tyler, thank you for the ideas. I have some learning to do on all this.
-
Yesterday was my biggest market loss ever (down 25k on paper), today was my biggest gain ever (up 30k on paper).
Nutty.
-
Diversification is very important. I know many here advocate all stocks. And that might work out for those just getting into the game but those approaching or in FIRE it might be more beneficial to cut potential gains a but to hedge against ddeflation, sentiment driven markets, etc.
I am currently ~50% stock/bond funds, 20% Cash, and 30% Precious metals. With about 12.5 years till fire I sleep better knowing that in any scenario I can make out ok.
On a side note, do you guys truly believe past performance in the markets will mirror into the future?
-
We are technically FIRE'd (dividends more than covering expenses), though my wife has chosen to continue working... so I feel that I can be a little more aggressive and be overweight equities, especially those of the dividend paying kind.
After the last few weeks my conviction is not quite as strong.
-
Diversification is very important. I know many here advocate all stocks. And that might work out for those just getting into the game but those approaching or in FIRE it might be more beneficial to cut potential gains a but to hedge against ddeflation, sentiment driven markets, etc.
I've never seen anyone actively recommend an all stock portfolio. Almost everyone says at least 10-20% bonds when someone asks how they should choose their allocation. However, if someone is already 100% stocks and asks if they're crazy, well some of us think they are and some of us think they aren't. (http://forum.mrmoneymustache.com/investor-alley/asset-allocation-100-stocks-for-how-long/)
-
I've always figured that at retirement I would trade in at least half my stocks for real estate. Split the income between dividends and rent. Rental income seems to me to be way safer than stocks during the retirement period. You miss out on the big gains, but if you are banking in big gains, you don't have enough to retire.
-
I've always figured that at retirement I would trade in at least half my stocks for real estate. Split the income between dividends and rent. Rental income seems to me to be way safer than stocks during the retirement period. You miss out on the big gains, but if you are banking in big gains, you don't have enough to retire.
We invested in a pretty lousy RE venture 10 yrs ago - but saw it through and now it cash flows somewhat nicely. Part of the reason for sticking with it was that I wanted RE income in retirement. Now we have it! :). As for our investment portfolio: we're very heavy in stocks - but we have enough in cash reserves to ride out a protracted downturn - okay maybe not a Japanese-esque downturn - but a couple years sure.
When the stock market gains a ton in a few months, that cash 'not working' kind of turns my stomach. But I think we have it at the right level now. Anyway, it's important to let go of the illusion that I can predict the market. I can't. But what I can do is place bets all over the table.
-
I do worry about another housing crash though as I will be selling and downsizing soon and that would hurt but not really impact my ER much.
Well, if you sell your larger house soon, at least you'll have a smaller house to lose equity on during the crash if there is one. :)
-
I am getting a bonus at work on the 30th of about $400. Put the after tax into my Roth IRA today and got 4 shares of VTI. Decided down 8% was a good enough sale to stick the bonus in. Otherwise I would have added it to the e-fund. I will not be able to max my IRA this year without sacrificing the all important e-fund. Not maxing the IRA is not an emergency like not having an emergency fund is!
You should consider using your emergency fund to max your Roth IRA. You can leave it as cash in there in case you actually need it. As you rebuild your emergency fund in your savings account you can slowly invest the cash portion of your rira to investments.
-
I am getting a bonus at work on the 30th of about $400. Put the after tax into my Roth IRA today and got 4 shares of VTI. Decided down 8% was a good enough sale to stick the bonus in. Otherwise I would have added it to the e-fund. I will not be able to max my IRA this year without sacrificing the all important e-fund. Not maxing the IRA is not an emergency like not having an emergency fund is!
You should consider using your emergency fund to max your Roth IRA. You can leave it as cash in there in case you actually need it. As you rebuild your emergency fund in your savings account you can slowly invest the cash portion of your rira to investments.
I will be unable to max my accounts next year (or really for the next 1-3 years), so not funding an e-fund now is just kicking the can down the road until I get out of 'recent graduate' status when it comes to promotions and pay. Any bonuses I get I'm not counting on, and they go towards my Roth ira until it is maxed. Having 10-15k on the side just in case is important to me.
-
I am getting a bonus at work on the 30th of about $400. Put the after tax into my Roth IRA today and got 4 shares of VTI. Decided down 8% was a good enough sale to stick the bonus in. Otherwise I would have added it to the e-fund. I will not be able to max my IRA this year without sacrificing the all important e-fund. Not maxing the IRA is not an emergency like not having an emergency fund is!
You should consider using your emergency fund to max your Roth IRA. You can leave it as cash in there in case you actually need it. As you rebuild your emergency fund in your savings account you can slowly invest the cash portion of your rira to investments.
I will be unable to max my accounts next year (or really for the next 1-3 years), so not funding an e-fund now is just kicking the can down the road until I get out of 'recent graduate' status when it comes to promotions and pay. Any bonuses I get I'm not counting on, and they go towards my Roth ira until it is maxed. Having 10-15k on the side just in case is important to me.
You can simultaneously use your e fund as your Roth IRA
Say you have 10k cash in a savings account and that is your fully funded emergency fund. Transfer $5500 to your Roth IRA and leave it in a money market account.
Now you have $4500 cash savings, $5500 cash Roth IRA. You get a $400 bonus. You deposit into savings and use $400 from your Roth to purchase investments.
God forbid you have an emergency you can withdraw the original $5500 from your Roth IRA no penalties. If you don't have an emergency then you didn't miss your opportunity to contribute
-
I am getting a bonus at work on the 30th of about $400. Put the after tax into my Roth IRA today and got 4 shares of VTI. Decided down 8% was a good enough sale to stick the bonus in. Otherwise I would have added it to the e-fund. I will not be able to max my IRA this year without sacrificing the all important e-fund. Not maxing the IRA is not an emergency like not having an emergency fund is!
You should consider using your emergency fund to max your Roth IRA. You can leave it as cash in there in case you actually need it. As you rebuild your emergency fund in your savings account you can slowly invest the cash portion of your rira to investments.
I will be unable to max my accounts next year (or really for the next 1-3 years), so not funding an e-fund now is just kicking the can down the road until I get out of 'recent graduate' status when it comes to promotions and pay. Any bonuses I get I'm not counting on, and they go towards my Roth ira until it is maxed. Having 10-15k on the side just in case is important to me.
You can simultaneously use your e fund as your Roth IRA
Say you have 10k cash in a savings account and that is your fully funded emergency fund. Transfer $5500 to your Roth IRA and leave it in a money market account.
Now you have $4500 cash savings, $5500 cash Roth IRA. You get a $400 bonus. You deposit into savings and use $400 from your Roth to purchase investments.
God forbid you have an emergency you can withdraw the original $5500 from your Roth IRA no penalties. If you don't have an emergency then you didn't miss your opportunity to contribute
Thanks for the info! I'll do this by the end of the year. I'll need some right now for moving/deposit for a new apartment and a few necessities due to moving, but I'll do as you suggested. That's what this forum is about, efficient use of the system.
-
...
You can simultaneously use your e fund as your Roth IRA
Say you have 10k cash in a savings account and that is your fully funded emergency fund. Transfer $5500 to your Roth IRA and leave it in a money market account.
Now you have $4500 cash savings, $5500 cash Roth IRA. You get a $400 bonus. You deposit into savings and use $400 from your Roth to purchase investments.
God forbid you have an emergency you can withdraw the original $5500 from your Roth IRA no penalties. If you don't have an emergency then you didn't miss your opportunity to contribute
Thanks for the info! I'll do this by the end of the year. I'll need some right now for moving/deposit for a new apartment and a few necessities due to moving, but I'll do as you suggested. That's what this forum is about, efficient use of the system.
The deadline to contribute to 2014 IRAs is the tax deadline- April 15th. So if you can get it in there by Dec 31st, great, but you have an additional few months before you lose the 2014 contribution opportunity forever.
-
Threads like this make me laugh. Especially for the younger people 10+ years out from FIRE like myself...which granted I know was not the target demographic of the thread but enough people that are years away chimed in so I figured I would.
I honestly couldn't even tell you what my equity portfolio is worth at this moment, it's spread across a couple 401k's, IRAs, and a brokerage acct. I don't even bother adding them all up on a daily or even monthly basis...why would I? The only time I even know what any of the accts is worth is when I need to log in to put in a buy order or when I do a quarterly evaluation. I am surely down from where I was last month...doesn't matter.
I can sum it up in a few sentences: For people that already FIRE'd their asset allocation and account balances should make enough sense that short term volatility doesn't affect their overall plan, so no freak outs should be incurred. For people that haven't, especially those with a long way to go...give me a break. We get 3+ years of amazing returns where all of us made an absolute boatload of money and people freak out because we get our first 10% correction...which is normally a yearly/bi-annual staple of a healthy market anyway...and all of a sudden it's 'woe is me all my saving is for naught I bought right before a crash!!"...how many people felt horrible about the market a month ago when we were breaking all time highs daily...stay the course, buy on a discount, get rich.
-
This type of volatility is a gut check for whether your asset allocation is in line with you being able to sleep at night. I've got a 60/40 allocation so not really losing any sleep. But I had to learn the hard way from the 2008 plunge when I was super aggressive and had 100% stock allocation. Anyway, still got another 10 years of saving to go so I'm happy to buy shares cheaper.
-
The Schiller PE is at a rare peak. Historically, when it is over 25, the following 10-year real return for stocks has been under 1%. Pretty grim if this is the first 10 years of your retirement. I may wait until it is under 15 (real stocks have returned >10% over 10 years historically in such settings).
-
I can sum it up in a few sentences: For people that already FIRE'd their asset allocation and account balances should make enough sense that short term volatility doesn't affect their overall plan, so no freak outs should be incurred. For people that haven't, especially those with a long way to go...give me a break. We get 3+ years of amazing returns where all of us made an absolute boatload of money and people freak out because we get our first 10% correction...which is normally a yearly/bi-annual staple of a healthy market anyway...and all of a sudden it's 'woe is me all my saving is for naught I bought right before a crash!!"...how many people felt horrible about the market a month ago when we were breaking all time highs daily...stay the course, buy on a discount, get rich.
You see, that's the thing, it's very easy for someone 10+ years away from FIRE'ing to spout this kind of thing, but perhaps much different when you have actually hung up the gloves and are living on a fixed income. Because the specter of "what if this time it's not just a routine 10% correction?" is going to weigh far more heavily on one's mind if they've just FIRE'ed, I suspect. And you have to put current market conditons in perspective -- 10-year Treasuries are at 2.2%. We are in unprecedented territory so far as I'm aware, so it's a little more difficult, I think, to just casually dismiss any significant downturn. Again, not saying this is the start of a bear market or a deflationary period or whatever, but just curious how people who FIRE'ed recently are reacting.
-
I can sum it up in a few sentences: For people that already FIRE'd their asset allocation and account balances should make enough sense that short term volatility doesn't affect their overall plan, so no freak outs should be incurred. For people that haven't, especially those with a long way to go...give me a break. We get 3+ years of amazing returns where all of us made an absolute boatload of money and people freak out because we get our first 10% correction...which is normally a yearly/bi-annual staple of a healthy market anyway...and all of a sudden it's 'woe is me all my saving is for naught I bought right before a crash!!"...how many people felt horrible about the market a month ago when we were breaking all time highs daily...stay the course, buy on a discount, get rich.
You see, that's the thing, it's very easy for someone 10+ years away from FIRE'ing to spout this kind of thing, but perhaps much different when you have actually hung up the gloves and are living on a fixed income. Because the specter of "what if this time it's not just a routine 10% correction?" is going to weigh far more heavily on one's mind if they've just FIRE'ed, I suspect. And you have to put current market conditons in perspective -- 10-year Treasuries are at 2.2%. We are in unprecedented territory so far as I'm aware, so it's a little more difficult, I think, to just casually dismiss any significant downturn. Again, not saying this is the start of a bear market or a deflationary period or whatever, but just curious how people who FIRE'ed recently are reacting.
Fair enough, I can see how its a bigger gut check when you need to live off the money as opposed to just saving it.
-
The Schiller PE is at a rare peak. Historically, when it is over 25, the following 10-year real return for stocks has been under 1%. Pretty grim if this is the first 10 years of your retirement. I may wait until it is under 15 (real stocks have returned >10% over 10 years historically in such settings).
There has been a lot of discussion on the Shiller PE recently and different people have different views on it. I guess I would point out this:
I don't dispute a low Shiller PE, if you can catch it or if it occurs, has been correlated with higher future returns, but are you factoring in the opportunity cost of waiting...for maybe as long as 2 decades?
It briefly came down to ~15 in '09 as a result of the financial crisis...if one had bought then you'd do very, very well, but it was also a disproportionately large recession compared to normal, and also a very hard time to commit all your capital for many people. It also only briefly touched around 15 before rising again (short window). Before that, it hadn't been under 15 since the late 1980's. You may be waiting a really long time.
I haven't run the numbers but my gut tells me someone that invested in the early 90s with a Shiller PE at 20 (after 'missing' the last sub-15 window) and then collected 15+ years of dividends and compounding growth was still better off than someone who held out the until they could buy in 2009. The S&P 500 still went up 70% from 1992 to the very bottom of the stock market collapse in 2009 even before considering dividends.
-
This type of volatility is a gut check for whether your asset allocation is in line with you being able to sleep at night. I've got a 60/40 allocation so not really losing any sleep.
Same here. I went from 70/30 to 60/40 this year because even though I was enjoying the new market highs, I was worried at night.
But I had to learn the hard way from the 2008 plunge when I was super aggressive and had 100% stock allocation.
Once again, I did the same. After the 2008 drop I was humbled. Iit was hard to resist the panic urge to sell. I vowed to hold on and not sell anything until the market had returned back to around 13,000.
I had to wait a few years but when it crossed 13K I started moving us into bond funds. Ended up around 70/30.
At the end of August I went to 60/40. Very happy I did. I sleep well now. This recent pull back is just noise.
-
If you are truly prepared to FIRE this little dip shouldn't have bothered you. Using the Fire calculator is a powerful tool. Determine what you intend to spend and for how long. It gives you a total to save. I intend to retire with a certain degree of luxury. Part of that luxury is sleeping at night when the market dips 10, 20 or 30 percent. Build in a buffer. Don't quit work when you can just pay the bills during the good times. I'm close now, but I'm making sure by building in an additional $250k before I pull the plug.