Author Topic: How are you weathering the current market drop?  (Read 15162 times)

Dawg Fan

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How are you weathering the current market drop?
« on: August 24, 2015, 04:54:18 AM »
Gotta ask, particularly you more recent FIRE-ees who are more dependent on the markets for your income (vs. pensions, part time work), how are you mentally doing with the continual market drops? You have done all the prep work, are set with 4%, all you modeling told you to FIRE, and now you hit your first FIRE storm (no pun intended). Are you just buckling up? Have you moved to canned soup and Saltines? Hunting a job? Just curious how many are sleeping like babies or are 2nd guessing any of their FIRE decisions. I'm still a 4 - 5 yrs away, but would love to hear how you folks are doing?

Mr. Green

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Re: How are you weathering the current market drop?
« Reply #1 on: August 24, 2015, 06:25:25 AM »
lol @ canned soup and saltines.

Bearded Man

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Re: How are you weathering the current market drop?
« Reply #2 on: August 24, 2015, 07:13:30 AM »
Rental real estate investor so it doesn't affect me much other than buying opportunity.

If it did, I'd likely go back to work to have a ton of cash to put inover the next few months or years.

regulator

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Re: How are you weathering the current market drop?
« Reply #3 on: August 24, 2015, 10:16:38 AM »
So far this is basically a minor market kerfluffle.  Not saying it could not develop into something more impactful, but if your plan did not contemplate something as minor as this you should not have pulled the plug in the first place.

Prior to any of this I decided that with another 40 to 50 years of life to fund and a couple of kids, I probably need to continue generating income for the forseeable future.  So I am attempting to execute on a plan of enough contract/freelance/remote work to cover our expenses and not worry about the rest too much while the markets do what they do over time.

The Pigeon

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Re: How are you weathering the current market drop?
« Reply #4 on: August 24, 2015, 10:38:11 AM »
Ignoring it. But I am a bit miffed that a big buy went thru on Friday rather than today. :-/ But, I'm a person whose luck is usually that way. If I buy today, it's either going on sale tomorrow, or the sale ended yesterday.

Mr. Green

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Re: How are you weathering the current market drop?
« Reply #5 on: August 24, 2015, 11:29:29 AM »
Ignoring it. But I am a bit miffed that a big buy went thru on Friday rather than today. :-/ But, I'm a person whose luck is usually that way. If I buy today, it's either going on sale tomorrow, or the sale ended yesterday.
The market may yet end positive for the day, so if you were buying mutual funds Friday may end up being the better day.

Financial.Velociraptor

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Re: How are you weathering the current market drop?
« Reply #6 on: August 24, 2015, 11:36:35 AM »
I checked bid/ask spreads on volatility index options (vxx, uvxy) and found they had gotten really wide even though liquidity was still decent.  I've made 6k in realized gains so far today by repeatedly buying low and selling high.  Of course, I have unrealized losses that dwarf that but somehow it still brings a smile to my face.

dpfromva

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Re: How are you weathering the current market drop?
« Reply #7 on: August 24, 2015, 11:53:39 AM »
Just another opportunity to buy more stock at a lower price (still investing, not living off it yet, makes a diff in your perspective!)

CowboyAndIndian

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Re: How are you weathering the current market drop?
« Reply #8 on: August 24, 2015, 11:56:10 AM »
Sleeping like a baby.

I do not look at the markets, just rebalance a couple of times a year.

Static Void

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Re: How are you weathering the current market drop?
« Reply #9 on: August 24, 2015, 12:00:31 PM »
Living on assets only for six months. (Well, ok, small income from some rented rooms in home, and also wife's minimal pension. In our high COL area they make almost no difference.) Basic lazy portfolio (65/35). Just staying the course (nerves of steel not yet required) and following the script: Rebalance.


schimt

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Re: How are you weathering the current market drop?
« Reply #10 on: August 24, 2015, 12:21:26 PM »
I just maxed my IRA out today

Exflyboy

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Re: How are you weathering the current market drop?
« Reply #11 on: August 24, 2015, 12:46:15 PM »
Currently running about a 75/20/5 stock/bond/cash split..

Firstly I have NOT looked at my particular portfolio. To do a NW calculation right now would not put me in a good mood.

Secondly I also assume my bonds have increased in value.. Once again I have not checked.

Thirdly, considering whether to roll SOME of my bond holdings into stock ETF's, although I am thinking I might do that when the market has pulled back 20%.. it was probably close to that this morning but is currently at 12%.

This is a good question because you KNOW many of us are trying to ignore the 800lb gorilla..:)


trailrated

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Re: How are you weathering the current market drop?
« Reply #12 on: August 24, 2015, 01:13:32 PM »
Still buying every Thursday when the paycheck arrives :)

Exflyboy

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Re: How are you weathering the current market drop?
« Reply #13 on: August 24, 2015, 01:20:08 PM »
OK planning on rolling "some" of my bonds into stocks at.

Dow 14681 and S&P 1708.. that's a 20% drop from the peak.

Still have a ways to go to get there.. otherwise I'm leaving everything where it is.


geekette

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Re: How are you weathering the current market drop?
« Reply #14 on: August 24, 2015, 02:14:06 PM »
We'd been planning on a Roth conversion some time this year to create income, so we put through some today.  Other than that, meh.

smiller257

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Re: How are you weathering the current market drop?
« Reply #15 on: August 24, 2015, 02:32:06 PM »

Frankies Girl

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Re: How are you weathering the current market drop?
« Reply #16 on: August 24, 2015, 03:00:52 PM »
Ignoring it. But I am a bit miffed that a big buy went thru on Friday rather than today. :-/ But, I'm a person whose luck is usually that way. If I buy today, it's either going on sale tomorrow, or the sale ended yesterday.


LOL. That's me too. :D

I have shifted a little cash over and plan to buy in tomorrow or Wednesday (whenever it finally finishes moving over). Just so I can say I caught some of the sale, as I (of course) just funded our IRAs for this year about two weeks ago. :P

I'm FIREd but the husband isn't, and his salary just covers our living expenses. He'd planned on quitting in early 2016, so our contingency plan is for him to keep working if this correction turns into a crash with a slow recovery that extends into next year. I don't actually anticipate it happening like that, but I'm a planner.

So not worried, just a bit miffed seeing the numbers going the wrong way in my accounts, but that is also knowing full well that it's not a real loss unless I sell, and I'm not panicked at all. It will come back up eventually!


Threshkin

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Re: How are you weathering the current market drop?
« Reply #17 on: August 24, 2015, 03:59:41 PM »
I am down about 7.7% from my all time peak earlier this summer.  But I am still up for the year.  I have a little bit over 15% in cash just waiting for the right entry point.  I will be buying soon, lots of good stuff is on sale!

sol

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Re: How are you weathering the current market drop?
« Reply #18 on: August 24, 2015, 04:19:20 PM »
Keep in mind that as prices go down, your dividend rate should go up.  You still own the same number of shares so as long as the companies keep paying the same amount, your dividend yield should look better.

See? It's not all doom and gloom.

Exflyboy

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Re: How are you weathering the current market drop?
« Reply #19 on: August 24, 2015, 04:25:55 PM »
exactly and if (like me) your WR is less than 2% (about what the S&P 500 was paying) then dividend payments should "always" generate more income than your spending anyway..:)

daverobev

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Re: How are you weathering the current market drop?
« Reply #20 on: August 24, 2015, 04:51:26 PM »
Keep in mind that as prices go down, your dividend rate should go up.  You still own the same number of shares so as long as the companies keep paying the same amount, your dividend yield should look better.

See? It's not all doom and gloom.

Yield on cost doesn't, though. Doesn't matter if you're getting 2% of $1 mil, 4% of $500k, or 8% of $250k - you're still yielding $20k.

As for me... I took the opportunity to get out of one individual share to top up my emerging markets, and switched some Canadian market to Canadian dividend, because I'm buying an ever so slightly different Canadian market ETF with our HELOC.

I'm theoretically FI, but my friend/boss keeps on giving me work and that's, um, easier than being daddy daycare.

Exflyboy

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Re: How are you weathering the current market drop?
« Reply #21 on: August 24, 2015, 05:15:39 PM »
Keep in mind that as prices go down, your dividend rate should go up.  You still own the same number of shares so as long as the companies keep paying the same amount, your dividend yield should look better.

See? It's not all doom and gloom.

Yield on cost doesn't, though. Doesn't matter if you're getting 2% of $1 mil, 4% of $500k, or 8% of $250k - you're still yielding $20k.

As for me... I took the opportunity to get out of one individual share to top up my emerging markets, and switched some Canadian market to Canadian dividend, because I'm buying an ever so slightly different Canadian market ETF with our HELOC.

I'm theoretically FI, but my friend/boss keeps on giving me work and that's, um, easier than being daddy daycare.

Exactly.. but if you only need $20k then who cares?..:)

Malaysia41

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Re: How are you weathering the current market drop?
« Reply #22 on: August 24, 2015, 05:43:07 PM »
1 year into fire. I'm rebalancing, not panicking.

daverobev

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Re: How are you weathering the current market drop?
« Reply #23 on: August 24, 2015, 05:48:59 PM »
Keep in mind that as prices go down, your dividend rate should go up.  You still own the same number of shares so as long as the companies keep paying the same amount, your dividend yield should look better.

See? It's not all doom and gloom.

Yield on cost doesn't, though. Doesn't matter if you're getting 2% of $1 mil, 4% of $500k, or 8% of $250k - you're still yielding $20k.

As for me... I took the opportunity to get out of one individual share to top up my emerging markets, and switched some Canadian market to Canadian dividend, because I'm buying an ever so slightly different Canadian market ETF with our HELOC.

I'm theoretically FI, but my friend/boss keeps on giving me work and that's, um, easier than being daddy daycare.

Exactly.. but if you only need $20k then who cares?..:)

True. But honestly, yield in theory is only one part, draw down is the other.

Personally, I'd rather never sell anything and just use the divis, which I know is not "the right way to think about it", but there you go.

I'm certainly less stressed about the... um... I dunno, $30k I'm down in the last time-since-it-started-going-down, than I was about 500 GBP ($750US, $1k CAD) during the actual meltdown. I've certainly learned that lesson - don't sell out the BT.L shares you bought for 100p or even less, as they would be yielding 10% on cost now! Ugh ugh ugh.

The Pigeon

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Exflyboy

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Re: How are you weathering the current market drop?
« Reply #25 on: August 25, 2015, 12:05:02 PM »
I saw that.. it was good.

Well looks like the buying opportunity was yesterday and the market has not gone down far enough for me to do anything different.. i.e roll any of my bond holdings into more Stock ETF's.

So sticking with my current allocation unless we get another leg down.

Tyler

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Re: How are you weathering the current market drop?
« Reply #26 on: August 25, 2015, 12:26:20 PM »
What market drop?  ;)

The current stock market drop only really hurts if you have most of your asset allocation in stocks and depend on selling them for income.  With modern portfolio theory, there are ways to build robust retirement portfolios with competitive returns but with fewer stocks and less subsequent volatility.  And with various income strategies (dividend growth, rentals, etc) you're not forced to sell low to pay the bills.  Either approach will leave you remarkably relaxed in times like this. 

I'm personally doing just fine.  My accounts have actually gone up recently, but I've learned not to get too high or low with investments.  IMHO, the best investment plan leaves you neither excited nor stressed about the markets.  Just happily indifferent, because you know your overall retirement plan with diversification not only in assets but also in contingencies runs far deeper than the stock market.

Exflyboy

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Re: How are you weathering the current market drop?
« Reply #27 on: August 25, 2015, 03:22:43 PM »
Hmm... down again today.. Dow is now about 14% off its all time high.. Another 6% and I'll move some of my bond allocation.

Dawg Fan

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Re: How are you weathering the current market drop?
« Reply #28 on: August 26, 2015, 04:27:25 AM »
Ok, finally had time to jump back on here and read most of the responses. Let me try and narrow the question down further to try and zero in on what I was after. Assumptions...
1) You are already ER and drawing down some % of assets/dividends of your portfolio. You need/planned on doing this so a decision must be made to create some cash flow to live.
2) You cannot live on any pension/SS/rental income/spouse income alone. I am really after the folks who are all/mostly dependent on their AA to fund their ER. Whether you are 75/20/5 or some other ratio, you had a plan at the beginning of the year to create a certain amount of cash flow to fund your expenses.

Here is what I am hearing that is prompting more questions...
- Dividends are covering expenses... I get this plan IF your dividends are enough to cover your expenses. Only real risk is a dividend cut, otherwise stock fluctuation doesn't bother you. My gues is your drawdown is probably south of 4%?
- How are your AA rebalance guys actually funding your expenses? I keep hearing many say they are selling bonds or using their cash to buy more stocks. That sounds great and a good strategy IF you know you have X months/years worth of cash/dividends to cover your expenses that will stay liquid/available?
- This raises the next question for you AA guys... Are you keeping 1 - 2 yrs in cash on hand basically every Jan to cover your costs or are you trying to draw your cash needs monthly? If your strategy is the first, then I can see how letting it ride is easier to handle. If it's the latter, then I would think you are pissing vinegar as you have to make a sale decision every month to fund your expenses (unless you are covered by a dividend only strategy)?

I'm still a few yrs from ER so I don't have to make some of these decisions, but if you are in ER and don't have all of these additional income sources as many do, I don't quite see how you are boldly buying at the bottom UNLESS you have a pot of cash put a side to cover a year plus expenses. Rebalancing right now will obviously tell you to sell bonds and buy stocks, but in the case of a 75/20/5 allocation, you still need to have cash to live.

Sooooo, how are you doing??

Malaysia41

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Re: How are you weathering the current market drop?
« Reply #29 on: August 26, 2015, 08:54:45 AM »
We have about 1 yr of expenses in cash. So I'm feeling ok.  We fired a year ago and the idea of being all in the market down to the last penny made me queasy.  We had enough in. Having seen dire outcomes for retirees some years on cfiresim, I decided to live w the cash drag on overall returns so I could sleep at night.  Dividends, interest, and passive income replenish this stash nicely so now I'm considering lowering the cash reserve amount.

I bought a few shares of Vti at 95 the other day using the cash reserve. If the market tanks dramatically, I'll pick up a few more.

Is that the kind of answer you were looking for?  I'm here all night - AMA!
« Last Edit: August 26, 2015, 09:04:43 AM by Malaysia41 »

geekette

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Re: How are you weathering the current market drop?
« Reply #30 on: August 26, 2015, 10:58:54 AM »
We're fairly new to this, only two years in. We started with a two year (plus, as it turns out) cash cushion. Never mind the drag, I like my sleep.

Last year we sold some old (soon to expire) options from my DH's old job to replenish (since he retired, he could keep them). He also got some inheritance money. This year, since we don't need to replenish,  we did a Roth conversion in the last few days to stay out of Medicaid territory.

Next year, we'll either sell something, if the market looks good, or hold tight (and do another conversion). We definitely don't spend as much as we thought we would.

Tyler

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Re: How are you weathering the current market drop?
« Reply #31 on: August 26, 2015, 11:12:16 AM »
I'm personally in the AA camp. We calculate our budget for the next year in December.  Stock dividends and bond interest are swept into cash and not reinvested, so we sell funds as needed to make up the difference and rebalance in a way that minimizes taxes.  We put the years worth of expenses in a checking account, and pretty much ignore the markets in between. IMHO, constantly watching the markets to try to buy the dips defeats the purpose of a passive investing strategy.  That's what rebalancing was designed for. 

When you're retired and truly comfortable with your investing plan, going outside and enjoying life beats staring at stock tickers every time.
« Last Edit: August 26, 2015, 11:49:17 AM by Tyler »

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Re: How are you weathering the current market drop?
« Reply #32 on: August 26, 2015, 03:22:37 PM »
When you're retired and truly comfortable with your investing plan, going outside and enjoying life beats staring at stock tickers every time.

Amen!  I just got done taking my longer vacation for the year and was amazed at how easily I forgot about the market.  I just watch it now as a form of entertainment since I am forced to sit at a computer all day.

soccerluvof4

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Re: How are you weathering the current market drop?
« Reply #33 on: August 29, 2015, 07:19:53 AM »
Welcomed it and took advantage of buying /adding to my index funds on sale.

AlwaysBeenASaver

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Re: How are you weathering the current market drop?
« Reply #34 on: September 02, 2015, 11:28:15 PM »
I'm 3 months into FIRE, the market drop hasn't changed my behavior, nor is it stressing me. I knew when I FIREd that the market would go up and down, sometimes significantly, during my retirement years. I'll rebalance in October as planned, and stick to my investment plan. When I'm due for another drawdown in January, if the market is significantly down, I'll use my cash accounts instead of selling the stock I had planned to sell, until the stock goes back up.

DoubleDown

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Re: How are you weathering the current market drop?
« Reply #35 on: September 08, 2015, 11:51:08 AM »
Almost 2 years into FIRE and shrugging at this dip. It's to be expected and like someone else said, if you didn't factor much larger drops than this into your planning you weren't ready to FIRE in the first place. I have over 1 year of expenses in cash so no need to do anything unless there was some kind of extended market crash that lasted years. Even then, it would just be a question of liquidating the most advantageous assets to cover expenses (to avoid selling at bottom).

dude

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Re: How are you weathering the current market drop?
« Reply #36 on: September 09, 2015, 01:38:00 PM »
Not post-FIRE, but getting pretty close (3.5 years).  I used the market dip as an opportunity to rebalance to an allocation I'd been wanting to be at (70/30) but was loathe to initiate after the huge market run-up of the past few years.  I'd been generally happy with 60/40, but was more and more convinced that with a sizeable pension coming at retirement (thus, in effect constituting a sizeable bond/fixed income piece of the portfolio), I was being too conservative, so this was a good opportunity to get to 70/30.

NoNonsenseLandlord

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Re: How are you weathering the current market drop?
« Reply #37 on: September 09, 2015, 06:00:33 PM »
I moved my monthly September to late August.  So far, it seems to be a good strategy.  I put in my October order, ~5% from where it is today, just in case another 1-day drop.

Buy when others are afraid.

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Re: How are you weathering the current market drop?
« Reply #38 on: September 10, 2015, 09:39:24 AM »
It isn't affecting us... or at least not yet.  I FIRE'd in July.  We had cash funds to weather a year or two, so we haven't dipped into the well since the drop.  My firecalc numbers have dropped... but I was expecting that to happen at some point.

pdxvandal

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Re: How are you weathering the current market drop?
« Reply #39 on: September 10, 2015, 11:43:47 PM »
I sold some ETFs for tax-loss harvesting purposes. Then bought a different ETF with most of those sold funds. Also added more to my kid's 529. That's about it. Everything else on auto-pilot.

EndlessJourney

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Re: How are you weathering the current market drop?
« Reply #40 on: September 11, 2015, 07:25:46 AM »
Silver lining is that at least the DRIPs are getting more bang for their buck... :)  or is that :(

forummm

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Re: How are you weathering the current market drop?
« Reply #41 on: September 11, 2015, 10:18:05 AM »
I did some tax loss harvesting.

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Re: How are you weathering the current market drop?
« Reply #42 on: September 15, 2015, 12:41:59 PM »
What Tyler said - my income is pension and dividends (stable, mostly blue-chip stocks in an income fund) and a REIT. At this point I am neither buying nor selling, so not an issue.

Dicey

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Re: How are you weathering the current market drop?
« Reply #43 on: September 16, 2015, 04:23:53 PM »
The only reason I even know how much they dropped is because we're in the middle of buying another property. It seemed to bother the loan person more than it did me. I suspect that it's because the drop is possibly more than she makes per year. And no, I'm not buying more equities, I'm preoccupied with this house we're buying for well below market value.

Rant: They are picking apart our income, saying we don't have the inflow to support this property, despite showing them how much we put into savings every month because we don't have car loans, CC debt, Student Loans, i-anything, or a house full of stupid shiny shit. They just do not get it. Arrrrgh!

Side rant: I'm pretty sure completely positive that my last (and only) colonoscopy was easier than getting a mortgage. What a clusterfuck! God, I miss liar's stated income loans.

Polixenes

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Re: How are you weathering the current market drop?
« Reply #44 on: September 22, 2015, 07:36:05 PM »
It's affected my wife and I mentally a bit. Retired in July and our investment pot (managed by a big name investment manager) is down nearly a hundred grand since we resigned from our jobs earlier in the year. We have moved to a new country and bought a house, car, furnishings, gadgets, pots and pans, everything. While we expect our normal expenditures to fit inside a 4% withdrawal rate, seeing our investments shrink the moment we retired is a little nerve-wracking! 

DoubleDown

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Re: How are you weathering the current market drop?
« Reply #45 on: September 23, 2015, 10:31:44 AM »
Rant: They are picking apart our income, saying we don't have the inflow to support this property, despite showing them how much we put into savings every month because we don't have car loans, CC debt, Student Loans, i-anything, or a house full of stupid shiny shit. They just do not get it. Arrrrgh!

Side rant: I'm pretty sure completely positive that my last (and only) colonoscopy was easier than getting a mortgage. What a clusterfuck! God, I miss liar's stated income loans.

Amen!

NearlyThere

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Re: How are you weathering the current market drop?
« Reply #46 on: September 23, 2015, 02:47:41 PM »
Did someone mention sale?

I'm buying up as much as I physically can

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Re: How are you weathering the current market drop?
« Reply #47 on: September 24, 2015, 10:04:19 AM »
No worries really - this is why.  If your investment portfolio is in stocks and bonds, you can count on about 3% return from dividends and interest alone.  You are counting on only 25% of your income to be dependent on the value of your portfolio.  This means that a 30% drop in the markets doesn't lead to a 30% drop in income, but instead something closer 7%.  Now you could sell more of your portfolio in a down year to close this gap, but I hope anyone considering FIRE can also weather a 7% drop in spending if needed as well.

Here's a simple sample portfolio showing this, using 12-month distribution yields from the top of the market (at least the best I remember them to be) - 70% VT (yield = 2.3%) 15% BIV (yield = 2.7%) 15% PGX (yield = 6%).  This gets you a yield of 2.92%.  So if your investment portfolio is $2M, then you can count on about $58k in income coming in no matter if the market is up or down.  If you were planning on a 4% SWR, you have over 70% (2.92%/4%= 73%) of your projected income already taken care of with just dividends and interest.  This leaves the remaining 27% of your projected income stream subject to movements in value, meaning that you were planning on selling 1.1% of your portfolio to achieve a 4% SWR.  For a $2M portfolio, that would be $22,000.  So let's say that stocks drop 40% while bonds rise just 5% in a significant down turn.  Assuming a 70/30 asset allocation, this means your net worth is down about 27%.  The stocks and bonds that you would have sold at the top of the market for $22,000 now only get you $16,000.  If you put this together with what you got in dividends and interest, your annual income is still $74,000.  Compared to the $80,000 a 4% SWR projects, this is only a decrease of about 7%. 

If this level of risk still doesn't feel good, maybe target a SWR of 3.5% or less.  At a 3.5% SWR, only 17% of your income stream is subject to market valuations.  At 3.25%, it is just 10%.  While I talked about stocks and bonds here, this same analysis can be applied to income real estate or anything else. 

But what about a true market cataclysm where dividends are getting cut?  If that is the case, your cost of living is also probably dropping as companies discount their prices to stem weak demand.  You'll find your property taxes go down, as do other costs like gas and household goods.  You desire for discretionary spending will also likely decrease - that just seems to happen when everyone is talking about the bad economy.  Take the time to figure out what your budget is in a normal year, and then what it would be if you just focused on the necessary expenditures and adjusted for some of the costs that are likely to drop. 

Finally, remember to also plan on multiple buffers to protect your standard of living - MMM does a great job of talking about this in his posts.  Flexibility is key for FIRE (or just assume a 3% SWR or less). 

Hope this helps.