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General Discussion => Post-FIRE => Topic started by: helloyou on January 13, 2021, 12:37:47 AM

Title: If the market crash 50-70%, would you still be FIRE?
Post by: helloyou on January 13, 2021, 12:37:47 AM
Hello,

As I'm contemplating going on fire (although still looking for job due to being in lockdown), I was wondering how are you FIRED guys prepared for potential downturn.

If the stock market crash 50-70%, would you still be fire?

In my case, due to being a low spender, a 50% crash would get my portfolio to shrink to the £300-350k mark, and due to my very low spending in nature, I'd still be lean FIRE and could stick to the 4% rule and spend around £1400/month for living and stay as-is.

But if it crashes by 70% I'd have no choice then to start looking for work to replenish my cash and prevent to suck cash from my portfolio at the lowest point... Maybe will go back living with my parents for the time being if no job can be found at that time?
This won't be pretty, but definitely not the end of the world!


What about you? What's your thoughts and preparation about that?

Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: cool7hand on January 13, 2021, 05:37:33 AM
My wife and I use a low volatility portfolio now that we are FIREd (I'm FIRE, she's coastFIRE until June when she joins me). Our goal is to continue to grow our wealth consistent with the 4% rule, but sacrifice additional growth for stability.

Google: Ray Dalio's All Seasons (aka All Weather) Portfolio. In exchange for more modest growth, it protects against wild swings in downturns. In 2020 during the Covid selloff, we initially hit an all-time high as people rushed into the gold and bonds we already held in this portfolio. When the market hit its low in 2020, some sites say that the market was down as much as 34% at this time, we were down only 12%. If we used this ratio with 50% (and I admit that such a ratio is not what would really happen), we'd still be FIREd. At 70%, we're cutting it close, but we'd still be much better off than others who are in solely equities.

The trade off of lower growth for less volatility isn't for everyone, but it fits our situation and goals.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: Illgetthere on January 13, 2021, 06:59:35 AM
I wouldn't be at 70%. At 50%, I could be with adjusted spending. However, I'm just FI and not FIRE right now. Once the RE part happens, I intend to keep a couple years expenses in cash and pull from it in a down-market rather than selling investments. The value of the stock doesn't matter until you sell, and I'd expect it to rebound at least a reasonable amount before the couple years were up. I also don't imagine I'll see a 70% downturn
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: NotJen on January 13, 2021, 07:45:52 AM
Depends on how long the "crash" lasts.

With the market downturn in March, I was no longer at my FIRE number (I had just FIRED 3 months earlier), but by the end of the year after the recovery I was 24% over my FIRE number.  It had no impact at all on my FIRE plans.

My FIRE number is just an idea, lots of things could make me reduce spending or increase income.  I'd still consider myself FIRED from my career, even though I might take on paid work from time to time.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: helloyou on January 13, 2021, 07:55:31 AM
I wouldn't be at 70%. At 50%, I could be with adjusted spending. However, I'm just FI and not FIRE right now. Once the RE part happens, I intend to keep a couple years expenses in cash and pull from it in a down-market rather than selling investments. The value of the stock doesn't matter until you sell, and I'd expect it to rebound at least a reasonable amount before the couple years were up. I also don't imagine I'll see a 70% downturn

For now we're in deflation mode, but if ever inflation pick up, we may end up like the 1970 where the FED was forced to increase interest rate significantly and tank the entire market.

I hope as well it won't happen, but who knows!
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: 2Birds1Stone on January 13, 2021, 08:25:36 AM
Yes.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: Greystache on January 13, 2021, 08:26:05 AM
I'm only 50% invested in equities, so it would sting, but it would not send me back to work.  I also have other streams of income available in addition to my investment portfolio.  Frankly, a 50% crash is what I have included in my planning.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: Bird In Hand on January 13, 2021, 08:29:06 AM
We're nominally FI but not RE - OMY!  A 50% drop would take RE off the table for sure, probably for a few years depending on the trajectory of the recovery.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: v8rx7guy on January 13, 2021, 08:39:34 AM
I'm confused.  Once you are financially independent, it should not matter if the market crashes or not.  At least historically speaking, if you unplug your income once you have 25X annual spending saved and invested in the markets, history says you have a high 90's percent chance of not running out of money for 30 years and often beyond.  This includes periods of times with really hard crashes approaching 50%.  Of course I am referring to 2008 and history has yet to be written if someone who unplugged right before that crash will still have funds after 30 years, but it does sure look good.  There are even members here who RE'd right around that time and they are doing just fine.  Maybe I am misunderstanding your question?
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: Chuck Ditallin on January 13, 2021, 08:43:08 AM
Is this not the same question as "Do you currently have a 2% withdrawal rate?", with a few caveats..?

Personally, no, we don't currently have a 2% withdrawal rate, but we will collect a very good pension in 5 years and another, smaller, one in 7. We also hold enough cash to cover us for 3-4 years from now; some of that money is due to be spent elsewhere, but we can't spend it as intended while under lockdown, so it will be a de facto addition to our emergency fund until we can spend it elsewhere.

We could live off the first pension alone, with some excess-trimming from our expenses.

We therefore currently have 1 year to worry about, which we could fund even if markets went down 50%.

The question also pre-supposes that markets went down 50% and stayed down. The overwhelming likelihood, based on past data, is that the markets will go down and then recover in a couple of years. Even the awful stagflation decade, two World Wars, etc have seen the markets recover to where they are today.

Coping with a temporary 50% decline for a couple of years is easy to plan for, even with a current 4% WR. Coping with the complete and permanent death of equities would be much harder, but is much less likely. I'd not explicitly plan for the latter, but I'm confident we would cope if necessary.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: 2Birds1Stone on January 13, 2021, 08:46:53 AM
Is this not the same question as "Do you currently have a 2% withdrawal rate?", with a few caveats..?

This would only apply if you were 100% equities.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: Jack0Life on January 13, 2021, 08:54:34 AM
I know this is just a what IF scenario but it doesn't seem plausible.
Looking at historical numbers, the worst run was 73&74 when the market dropped 17% and 29%. Also in 2000&01&02 when it dropped 10% 13% and 23%, Even through those times it wasn't 50%.
While 50% could happened, 70% is far fetched.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: 2Birds1Stone on January 13, 2021, 08:57:26 AM
I know this is just a what IF scenario but it doesn't seem plausible.
Looking at historical numbers, the worst run was 73&74 when the market dropped 17% and 29%. Also in 2000&01&02 when it dropped 10% 13% and 23%, Even through those times it wasn't 50%.
While 50% could happened, 70% is far fetched.

(https://i0.wp.com/earlyretirementnow.com/wp-content/uploads/2019/10/AfraidOfBearMarket-Table01-1.png?w=639&ssl=1)
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: helloyou on January 13, 2021, 09:15:58 AM

(https://i0.wp.com/earlyretirementnow.com/wp-content/uploads/2019/10/AfraidOfBearMarket-Table01-1.png?w=639&ssl=1)

Looks like I should use 50-86% lol

Impossible to live on 86% drop lol. A $1M portfolio would just worth $140k!!!
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: Chuck Ditallin on January 13, 2021, 09:17:30 AM
Is this not the same question as "Do you currently have a 2% withdrawal rate?", with a few caveats..?

This would only apply if you were 100% equities.

That would be one of the caveats.

To take it to its logical conclusion, if all your investments were currency under the mattress, your net worth would be unchanged if the markets plunged (with a few caveats.)
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: CoffeeR on January 13, 2021, 09:40:19 AM
Google: Ray Dalio's All Seasons (aka All Weather) Portfolio. In exchange for more modest growth, it protects against wild swings in downturns.
How do you invest in commodities? Not counting precious metal's ETF's, most commodity ETF/Funds actually track the futures market and have their own unique set of problems.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: SwordGuy on January 13, 2021, 10:52:15 AM
Yes, because our passive income sources that provide our FI income do not rely on the stock market.  Our market portfolio is for long term growth, not for day-to-day expenses.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: spartana on January 13, 2021, 02:41:59 PM
Yes. I lost 50% of my NW shortly after I FIREd during the Great Recession and did fine. Had some cash (CDs and bonds) I could live off so didn't have to touch the stash and could live on a small amount.  I also could have taken in roommates, sold my paid off house and rented, or gone back to work even PT or seasonal/temp and cover my low expenses. I didn't have to do any of those things. So other than some belt tightening on discretionary things,  nothing really changed for me. If it was a permanent situation I'd still be FIRE but just have to live leaner then I'd like.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: GuitarStv on January 13, 2021, 02:45:57 PM
That's why you keep bonds.  When your stocks have tanked, you take your money out of bonds for a few years until the market recovers.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: helloyou on January 13, 2021, 03:18:41 PM
Yes. I lost 50% of my NW shortly after I FIREd during the Great Recession and did fine. Had some cash (CDs and bonds) I could live off so didn't have to touch the stash and could live on a small amount.  I also could have taken in roommates, sold my paid off house and rented, or gone back to work even PT or seasonal/temp and cover my low expenses. I didn't have to do any of those things. So other than some belt tightening on discretionary things,  nothing really changed for me. If it was a permanent situation I'd still be FIRE but just have to live leaner then I'd like.

Do you mean the 2008 crisis?
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: helloyou on January 13, 2021, 03:21:28 PM
That's why you keep bonds.  When your stocks have tanked, you take your money out of bonds for a few years until the market recovers.

Which bonds? If you get corporate bonds they'll tank as well as we've seen during march crash. And if company becomes insolvent they won't pay interest anyway. So your bonds are not worth anything if the pay are cut.

The only bonds which are guaranteed to pay are the treasury bonds.. but then we're close to 0% interest.

I can't see bond very helpful if we see a 50-70% crash tbh..
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: spartana on January 13, 2021, 03:34:49 PM
Yes. I lost 50% of my NW shortly after I FIREd during the Great Recession and did fine. Had some cash (CDs and bonds) I could live off so didn't have to touch the stash and could live on a small amount.  I also could have taken in roommates, sold my paid off house and rented, or gone back to work even PT or seasonal/temp and cover my low expenses. I didn't have to do any of those things. So other than some belt tightening on discretionary things,  nothing really changed for me. If it was a permanent situation I'd still be FIRE but just have to live leaner then I'd like.

Do you mean the 2008 crisis?
Yes. I had no debt and a paid off house. Investments and home value tanked by about 50% each but because I didn't have big expenses, it wasn't hard to live on cash for a few years.  I cut my discretionary spending (travel etc) and pursued low cost or free hobbies I actually was able to live on quit a bit less then I had thought I needed and my "cash" lasted a long long time. I also had a small future pension I could get at age 50 and planned to sell my house and downsize so knew I would have that later in life.

Others have real estate or other early retirement things so not as dependent on the stash 100%. Most people who are do put several years expenses in "cash" to cover a downturn. The lean FIRE crowd though could be in trouble if they have no expenses to cut further and no cushion to tied them over. And while most can find work again if needed, many in the 2008 recession who lost their jobs couldn't even find a minimum wage job flipping burgers let alone in their own field. Obviously your age plays a role in that. If you are in your 30s or early 40s then  you can likely bounce back. If you are 50s and beyond it might be harder.

ETA: I currently keep $30k in a low interest money market account. That would cover about 3 years worth of my "base" expenses without having to touch anything else. However I now get a small government pension since I turned 50 and that covers all my low "base"  expenses. I haven't really touched investments yet but did start tapping them to travel more this year - DOH!.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: helloyou on January 13, 2021, 03:47:05 PM
Yes. I had no debt and a paid off house. Investments and home value tanked by about 50% each but because I didn't have big expenses, it wasn't hard to live on cash for a few years.  I cut my discretionary spending (travel etc) and pursued low cost or free hobbies I actually was able to live on quit a bit less then I had thought I needed and my "cash" lasted a long long time. I also had a small future pension I could get at age 50 and planned to sell my house and downsize so knew I would have that later in life.

Others have real estate or other early retirement things so not as dependent on the stash 100%. Most people who are do put several years expenses in "cash" to cover a downturn. The lean FIRE crowd though could be in trouble if they have no expenses to cut further and no cushion to tied them over. And while most can find work again if needed, many in the 2008 recession who lost their jobs couldn't even find a minimum wage job flipping burgers let alone in their own field. Obviously your age plays a role in that. If you are in your 30s or early 40s then  you can likely bounce back. If you are 50s and beyond it might be harder.

ETA: I currently keep $30k in a low interest money market account. That would cover about 3 years worth of my "base" expenses without having to touch anything else. However I now get a small government pension since I turned 50 and that covers all my low "base"  expenses. I haven't really touched investments yet but did start tapping them to travel more this year - DOH!.

Aww that sounds good. I keep being confused by your quote "fired at 36? 42?" I thought you were my age so wasn't sure if you retired 12 years ago
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: American GenX on January 13, 2021, 03:47:18 PM
Yes, and do some rebalancing.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: spartana on January 13, 2021, 03:52:23 PM
Yes. I had no debt and a paid off house. Investments and home value tanked by about 50% each but because I didn't have big expenses, it wasn't hard to live on cash for a few years.  I cut my discretionary spending (travel etc) and pursued low cost or free hobbies I actually was able to live on quit a bit less then I had thought I needed and my "cash" lasted a long long time. I also had a small future pension I could get at age 50 and planned to sell my house and downsize so knew I would have that later in life.

Others have real estate or other early retirement things so not as dependent on the stash 100%. Most people who are do put several years expenses in "cash" to cover a downturn. The lean FIRE crowd though could be in trouble if they have no expenses to cut further and no cushion to tied them over. And while most can find work again if needed, many in the 2008 recession who lost their jobs couldn't even find a minimum wage job flipping burgers let alone in their own field. Obviously your age plays a role in that. If you are in your 30s or early 40s then  you can likely bounce back. If you are 50s and beyond it might be harder.

ETA: I currently keep $30k in a low interest money market account. That would cover about 3 years worth of my "base" expenses without having to touch anything else. However I now get a small government pension since I turned 50 and that covers all my low "base"  expenses. I haven't really touched investments yet but did start tapping them to travel more this year - DOH!.

Aww that sounds good. I keep being confused by your quote "fired at 36? 42?" I thought you were my age so wasn't sure if you retired 12 years ago
Yeah I can see that as confusing. Guess I should change it to "FIREd a million years ago!" I actually Fired at 36, took two years off to travel, then went back to my old job for 4 years (bought a house and paid it off then), then quit again at 42 and haven't worked since. Now I'm a 50-something retiree who hasn't worked in years so it does seem like I've been FIREd a million years ;-)!
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: helloyou on January 13, 2021, 04:11:16 PM
Yeah I can see that as confusing. Guess I should change it to "FIREd a million years ago!" I actually Fired at 36, took two years off to travel, then went back to my old job for 4 years (bought a house and paid it off then), then quit again at 42 and haven't worked since. Now I'm a 50-something retiree who hasn't worked in like 20 years so it does seem like I've been FIREd a million years ;-)!

Ahhh I see. Makes sense now.

I was about to travel and try FIRING if there wasn't lockdown everywhere. So back to looking for work for now.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: MoseyingAlong on January 13, 2021, 04:59:38 PM
That's why you keep bonds.  When your stocks have tanked, you take your money out of bonds for a few years until the market recovers.

Which bonds? If you get corporate bonds they'll tank as well as we've seen during march crash. And if company becomes insolvent they won't pay interest anyway. So your bonds are not worth anything if the pay are cut.

The only bonds which are guaranteed to pay are the treasury bonds.. but then we're close to 0% interest.

I can't see bond very helpful if we see a 50-70% crash tbh..

In my view, the main point of having bonds is safety, not return. It sucks right now that interest rates are so low but if you buy short-term individual CDs and/or Treasury bonds, they are still about the safest option.

I have/recommend a CD/bond ladder, about 5 years, maybe a little less. If the stock market crashes, use the CD/bond ladder for your living expenses while giving the market time to recover. Yes, the low returns on the ladder might be a drag on your overall portfolio but, if they make a material difference, you were on the edge anyway.

BTW I recommend individual CDs and Treasury bonds. You don't want to be all in bond funds and have your fellow fund holders cash out causing the managers to have to see at a loss. You want the safety of knowing you will get 100% of your CD/bonds when you need them (assuming FDIC and Treasury haven't failed. In which case we probably have bigger problems.). If you want to goose the returns a little, maybe get a corporate or muni bond for 20% of a rung, but not the whole thing.

This isn't difficult to implement. Once a year when the CD/bond matures, decide if you need it for spending or roll it over to the end of the ladder. Done for another year.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: lutorm on January 13, 2021, 05:48:52 PM
I'm confused.  Once you are financially independent, it should not matter if the market crashes or not.  At least historically speaking, if you unplug your income once you have 25X annual spending saved and invested in the markets, history says you have a high 90's percent chance of not running out of money for 30 years and often beyond.  This includes periods of times with really hard crashes approaching 50%.  Of course I am referring to 2008 and history has yet to be written if someone who unplugged right before that crash will still have funds after 30 years, but it does sure look good.  There are even members here who RE'd right around that time and they are doing just fine.  Maybe I am misunderstanding your question?
I was going to say the same thing. As I understand the 4% "rule", it concludes that you'd be largely safe keeping a 70-30 asset allocation and not changing your spending for any market behavior that's comprised by the existing stock market history. A severe market crash is already factored into the conditions, because there have been such crashes in the past. This is why 4% is considered the "safe" withdrawal rate. (There are details, of course...)

If you're FIRE according to to the 4% "rule", you don't suddenly become un-FIREd if the market goes down such that your annual expenses are now >4%. It would certainly be unnerving, but even the majority of those scenarios have come out OK historically.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: ysette9 on January 13, 2021, 08:47:51 PM
We are employing the reverse equity glide path, also known as the bond tent approach. So once we reached out FI number we were 60/40 stock/bond. The idea is we will spend down our bonds in the first ten years or so of retirement and slowly move back to a very equity-heavy allocation once our portfolio is too big to fail. So if the stock market plunged 50% we should be fine with a combo of living off the bonds and rebalancing to buy stocks when they are low. Given last history I wouldn’t expect such a dump to last more than a few years, and we would be fine in that time.

We also spend a lot and so have a lot more wiggle room than others. And with my husband OMYing and how well the market has done recently we are at 135% of our FI number.... it would suck to look at our spreadsheet but I am sure we would be a-okay.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: chevy1956 on January 13, 2021, 09:38:38 PM
I've just fired and I have enough in cash for the next couple of years. I expect the market to crash 50% more than once when I retire. I also expect the market to crash that much when I'm 100% stocks as I intend to slowly get to 100% stocks.

It's all part of the plan. I hope the plan works and I'm not going to fret about what I expect to happen.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: Dicey on January 13, 2021, 09:53:42 PM
Yup. This is not something I lose sleep over.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: Omy on January 13, 2021, 10:09:04 PM
We would be fine.

30% of our total net worth is in real estate. Our residence and rentals are mortgage free. And the rentals bring in enough to cover our basic expenses.

20% of our net worth is cash/bonds/annuity. It's a big safety net, but we want the flexibility to purchase more real estate if the right opportunity presents itself. And it keeps us from having to sell when the market is down.

50% of our net worth is in the stock market. So a 50% downturn is "only" a 25% drop in net worth. Not a big deal since we can survive with a 1-2% withdrawal rate.

We are both within a decade of being able to draw social security, and we both have other income sources we can turn back on if necessary. We just stick with the plan and never look at our balances on bad market days.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: spartana on January 13, 2021, 10:22:31 PM
I've just fired and I have enough in cash for the next couple of years. I expect the market to crash 50% more than once when I retire. I also expect the market to crash that much when I'm 100% stocks as I intend to slowly get to 100% stocks.

It's all part of the plan. I hope the plan works and I'm not going to fret about what I expect to happen.
That's a good point. The younger you FIRE, the more likely you are to see 2 or more big drops during your life time. Besides all the little once since 2008, a big one is likely and maybe soon. That will be 2 big uns in my FIRE life so far and likely more when I'm older.  But I am in a better financial position now then I was then.  Big run ups before a crash often helps.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: Jack0Life on January 13, 2021, 11:18:11 PM
I know this is just a what IF scenario but it doesn't seem plausible.
Looking at historical numbers, the worst run was 73&74 when the market dropped 17% and 29%. Also in 2000&01&02 when it dropped 10% 13% and 23%, Even through those times it wasn't 50%.
While 50% could happened, 70% is far fetched.

(https://i0.wp.com/earlyretirementnow.com/wp-content/uploads/2019/10/AfraidOfBearMarket-Table01-1.png?w=639&ssl=1)

i still stand by what I said.
Let's not count the Great Depression because that's an outlier and will never happened again in our lifetime.
Your chart is based on peak to bottom, what I stated was yearly returns.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: helloyou on January 14, 2021, 02:15:02 AM
I know this is just a what IF scenario but it doesn't seem plausible.
Looking at historical numbers, the worst run was 73&74 when the market dropped 17% and 29%. Also in 2000&01&02 when it dropped 10% 13% and 23%, Even through those times it wasn't 50%.
While 50% could happened, 70% is far fetched.

(https://i0.wp.com/earlyretirementnow.com/wp-content/uploads/2019/10/AfraidOfBearMarket-Table01-1.png?w=639&ssl=1)

i still stand by what I said.
Let's not count the Great Depression because that's an outlier and will never happened again in our lifetime.
Your chart is based on peak to bottom, what I stated was yearly returns.

As much as I'd like to believe that such drop will never happen... What evidence you have to say it will never happen again?
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: vand on January 14, 2021, 05:32:42 AM
I somehow feel this is appropriate

(https://memegenerator.net/img/instances/65230086.jpg)
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: Malcat on January 14, 2021, 06:56:18 AM
If you are close to FIRE, you should have a plan for handling SORR that fits with your specific risk tolerance.

Personally, I would be far more concerned about global civil unrest and everyone's safety if the global markets dropped 70%.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: Abe Froman on January 14, 2021, 07:46:39 AM
If you are close to FIRE, you should have a plan for handling SORR that fits with your specific risk tolerance.

Personally, I would be far more concerned about global civil unrest and everyone's safety if the global markets dropped 70%.

And then its BUY BUY BUY til it hurts!
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: Metta on January 14, 2021, 08:00:09 AM
We would, but at 70 percent it would be very tight. Fifty percent crash is fine. It basically gives us our living expenses. I echo what someone else here said. When we decided we were FIRE we did it based on the question of could we survive a 50 percent crash because we knew one would come.

What we feel less comfortable with is runaway inflation, though we think that our stock-heavy portfolio will be ok. But it adds a level of unpredictability to expenses that’s harder to reckon with.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: GuitarStv on January 14, 2021, 08:28:23 AM
That's why you keep bonds.  When your stocks have tanked, you take your money out of bonds for a few years until the market recovers.

Which bonds? If you get corporate bonds they'll tank as well as we've seen during march crash. And if company becomes insolvent they won't pay interest anyway. So your bonds are not worth anything if the pay are cut.

The only bonds which are guaranteed to pay are the treasury bonds.. but then we're close to 0% interest.

I can't see bond very helpful if we see a 50-70% crash tbh..

I own bonds and some bond funds (that are a combination of treasury, municipal, and corporate bonds).  They were still significant enough during the '07/'08 crash that I'd have been able to live off them until my toilet level stocks had all recovered.  They don't perform as well as stocks during average/good years - don't expect them to but that's not why you hold them.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: YttriumNitrate on January 14, 2021, 08:33:52 AM
I think it depends on the length of the crash as much as the severity of the crash. The market dropping 70% and staying down at that level for five years is quite different than the market dropping 70% and recovering half the losses within six months.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: Malcat on January 14, 2021, 08:37:53 AM
If you are close to FIRE, you should have a plan for handling SORR that fits with your specific risk tolerance.

Personally, I would be far more concerned about global civil unrest and everyone's safety if the global markets dropped 70%.

And then its BUY BUY BUY til it hurts!

The OP asked about people who are already retired. Where would they get the funds to buy?
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: Omy on January 14, 2021, 09:58:19 AM
Some FIREd peeps hold cash and bonds for buying opportunities. I've even heard of some who use HELOCs to buy discounted stocks.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: spartana on January 14, 2021, 10:29:08 AM
Some FIREd peeps hold cash and bonds for buying opportunities. I've even heard of some who use HELOCs to buy discounted stocks.
That's true. I bought a bunch of deeply discount stocks during the 2008 recession (and I bought a cheap foreclosure in a HCOLA) as I did have some extra cash around. But you roll the dice a bit because you never know how long a downturn will last or how far it drops.  Maybe to nothing and never recovers.  Same with the housing market crash. It's a level of risk many FIRE people aren't comfortable making.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: American GenX on January 14, 2021, 11:23:48 AM
Some FIREd peeps hold cash and bonds for buying opportunities. I've even heard of some who use HELOCs to buy discounted stocks.

I would think that most would hold cash or bonds as part of their AA and rebalance when stocks are down, ie "buying stocks".  How often someone rebalances is another matter.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: Malcat on January 14, 2021, 11:53:20 AM
Some FIREd peeps hold cash and bonds for buying opportunities. I've even heard of some who use HELOCs to buy discounted stocks.

I would think that most would hold cash or bonds as part of their AA and rebalance when stocks are down, ie "buying stocks".  How often someone rebalances is another matter.

That's assuming they aren't depending on living on that cash as part of their strategy to not sell during a massive and prolonged crash.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: Fishindude on January 15, 2021, 11:35:00 AM
It would be no fun, but we're good.   
Have a fair amount of cash, income from real estate, income from a business and some other "non stock market" investments.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: bmjohnson35 on January 16, 2021, 10:46:47 AM

Just like many others have stated, we have a PLAN to deal with major dips in the market.  Otherwise, we wouldn't be FIRE'D.  Now if Obamacare suddenly went away, I would have to find a job that provided healthcare insurance, preferably part-time. 
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: seattlecyclone on January 16, 2021, 08:13:26 PM
We had more than 25x expenses invested when I left my corporate job. That would no longer be the case if the market dropped 50-70%, but the whole point of the SWR research was to identify a spending level that would be resistant to market declines of the intensity and duration that we've seen in the past. If a bigger, more long-lasting decline than we've ever seen before happens next year, all bets are off.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: Much Fishing to Do on January 17, 2021, 07:18:59 AM
I backtest my portfolio/portfolio changes assuming a FIRE date at the beginning of the 2000 drop and the 2007.  2000 (given it then gets hit by 2007) would have been a rough ride, but that's assuming no change in spending which I've got room to do, and assumes even rebalancing throughout when in fact my plan is to spend down from the 4 years of cash I carry for the first big drop I encounter.

One of the little things I like about the 4% SWR is a 20% portfolio drop (which I would see once at around a 30% market drop) puts you at a 5% SWR, which I consider a reasonable SWR anyway for someone with some spending flexibility, so it really would take the market to drop more than 30% before I'd even consider it an event. 

Yes, a 70% drop would hurt bigtime, and if I was still working would keep my job, and if not still working might start looking for part time work.  Though I'm willing to take the chance I'm too old to care or gone before that happens....
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: soccerluvof4 on January 17, 2021, 03:19:15 PM
While I think there would be way to many buyers well before a 70% dip me being one of them, I would be fine and not touch my portfolio for at least 3 years. We saw that in March
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: ixtap on January 17, 2021, 03:25:49 PM
While I think there would be way to many buyers well before a 70% dip me being one of them, I would be fine and not touch my portfolio for at least 3 years. We saw that in March

I know everything seemed drawn out, but I don't think March lasted quite 3 years!
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: ardrum on January 18, 2021, 06:19:43 AM
I think it would come down to how quickly and to what extent the recovery would come.  Retiring in 2000 with the 4% rule (full decade with a negative real return for those 100% in U.S. total stock market) would be far worse than retiring with the same 100% U.S. total stock market before the 2008 plunge (relatively fast recovery with massive, long-lasting bull after). 

Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: soccerluvof4 on January 20, 2021, 08:43:02 AM
While I think there would be way to many buyers well before a 70% dip me being one of them, I would be fine and not touch my portfolio for at least 3 years. We saw that in March

I know everything seemed drawn out, but I don't think March lasted quite 3 years!


I didn't say it was 3 years did I? I was referring to the dip buyers. Perhaps I will have to point out the obvious more elementary.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: Roland of Gilead on January 20, 2021, 09:58:23 AM
Currently we are 50% cash, 50% index funds, so a 50% crash would still leave us 75% of our net invested worth.  I would evaluate the reasons behind the crash but it is very likely I would take 5% of our cash and leverage it via leaps into a market recovery.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: blue_green_sparks on January 23, 2021, 06:24:06 AM
I have been very slowly replacing some of my saddest fixed-income assets with "Innovator" defined outcome index ETFs that buffer against S&P losses while capping gains (with an expense ratio of 0.79%). There are three levels of buffer/caps to choose from, the lightest being a -9% downside buffer with a 15% cap on returns and the heaviest being a -5% to -35% buffer with a 6.80% cap on returns.

Each month has a fund and they track the underlying index but with less volatility and rebalance after 365 days when the comprising layers of options expire. You can buy (or sell) anytime, however the buffer and cap percentages bounce around a bit with the current price.

Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: Dicey on January 23, 2021, 09:08:04 AM
Currently we are 50% cash, 50% index funds, so a 50% crash would still leave us 75% of our net invested worth.  I would evaluate the reasons behind the crash but it is very likely I would take 5% of our cash and leverage it via leaps into a market recovery.
Just curious, why do you keep so much cash? We are cash heavy, and I believe in big, fat emergency funds, but nowhere near 50%.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: sui generis on January 23, 2021, 06:56:55 PM
Personally, I would be far more concerned about global civil unrest and everyone's safety if the global markets dropped 70%.

This. My plan includes being able to survive such a downturn without changing my withdrawal rate, even though I obviously would do so. The social and political ramifications, though? I have to admit I do not have a plan for that.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: GreenEggs on January 23, 2021, 09:14:22 PM
We'd still be FIRE, but we wouldn't be fine.  We're about 20% cash, 20% real estate, and 60% equities today.  That doesn't include our homes & vehicles, which are paid for. The real estate is presently for sale, so the equities will become 80% as it sells.  That's a lot in equities, but I wouldn't want to sit on any more cash while the market is still in such an uptrend.  The cash on hand is enough for 5-10 years of comfortable living, but if the markets took a dive I'd likely want to pull enough out to double our cash holdings. 

















Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: ixtap on January 23, 2021, 09:20:51 PM
We'd still be FIRE, but we wouldn't be fine.  We're about 20% cash, 20% real estate, and 60% equities today.  That doesn't include our homes & vehicles, which are paid for. The real estate is presently for sale, so the equities will become 80% as it sells.  That's a lot in equities, but I wouldn't want to sit on any more cash while the market is still in such an uptrend.  The cash on hand is enough for 5-10 years of comfortable living, but if the markets took a dive I'd likely want to pull enough out to double our cash holdings.

You have a plan to sell after a crash?
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: GreenEggs on January 23, 2021, 10:35:57 PM
We'd still be FIRE, but we wouldn't be fine.  We're about 20% cash, 20% real estate, and 60% equities today.  That doesn't include our homes & vehicles, which are paid for. The real estate is presently for sale, so the equities will become 80% as it sells.  That's a lot in equities, but I wouldn't want to sit on any more cash while the market is still in such an uptrend.  The cash on hand is enough for 5-10 years of comfortable living, but if the markets took a dive I'd likely want to pull enough out to double our cash holdings.

You have a plan to sell after a crash?


Probably not the best decision, but I'd likely make some adjustments before hitting a certain level.   
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: nereo on January 24, 2021, 05:07:41 AM
That's why you keep bonds.  When your stocks have tanked, you take your money out of bonds for a few years until the market recovers.

Which bonds? If you get corporate bonds they'll tank as well as we've seen during march crash. And if company becomes insolvent they won't pay interest anyway. So your bonds are not worth anything if the pay are cut.

The only bonds which are guaranteed to pay are the treasury bonds.. but then we're close to 0% interest.

I can't see bond very helpful if we see a 50-70% crash tbh..

OP - I’m seeing a lot of assumptions in your posts here which suggest that you aren’t fully understanding why an X% WR has succeeded __ % of the time, as well as things like sequence of returns risk (SORR).

For example, treasury bonds, even at 0%, are held in some portfolios precisely because they can be drawn upon during market crashes (either directly in accordance with a pre-ordained IPS, or automatically through periodic rebalancing).

Contrary to your conviction, most model portfolios survive the ‘great depression’ crash just fine.  The few that fail are ones who’s start date occurred just before the crash — those that retired 5+ years before hand do just fine, even when heavily loaded with equities (that, in a nutshell, is SORR).  The ‘Great Recession’ is even more interesting... while the crash was bad, the following run up so extreme that most FIREees who have lived through it are doing just fine.  Of course it’s still too early to predict all the 30+ year timeframes from that crash, but all early signs are encouraging.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: stoaX on January 24, 2021, 09:39:57 AM
I think it depends on the length of the crash as much as the severity of the crash. The market dropping 70% and staying down at that level for five years is quite different than the market dropping 70% and recovering half the losses within six months.

That's how I would've responded but you beat me to it.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: soccerluvof4 on January 24, 2021, 10:59:56 AM
I think it depends on the length of the crash as much as the severity of the crash. The market dropping 70% and staying down at that level for five years is quite different than the market dropping 70% and recovering half the losses within six months.

That's how I would've responded but you beat me to it.




If I have a fear it would be more that as well.  The decline could be a good opportunity as in the past a buying opportunity but  a decline and sideways for many years is what could really erode the portfolio. Its one of the reasons I have more cash than usual right now but that is at a cost as well.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: helloyou on January 24, 2021, 10:48:25 PM
That's why you keep bonds.  When your stocks have tanked, you take your money out of bonds for a few years until the market recovers.

Which bonds? If you get corporate bonds they'll tank as well as we've seen during march crash. And if company becomes insolvent they won't pay interest anyway. So your bonds are not worth anything if the pay are cut.

The only bonds which are guaranteed to pay are the treasury bonds.. but then we're close to 0% interest.

I can't see bond very helpful if we see a 50-70% crash tbh..

OP - I’m seeing a lot of assumptions in your posts here which suggest that you aren’t fully understanding why an X% WR has succeeded __ % of the time, as well as things like sequence of returns risk (SORR).

For example, treasury bonds, even at 0%, are held in some portfolios precisely because they can be drawn upon during market crashes (either directly in accordance with a pre-ordained IPS, or automatically through periodic rebalancing).

Contrary to your conviction, most model portfolios survive the ‘great depression’ crash just fine.  The few that fail are ones who’s start date occurred just before the crash — those that retired 5+ years before hand do just fine, even when heavily loaded with equities (that, in a nutshell, is SORR).  The ‘Great Recession’ is even more interesting... while the crash was bad, the following run up so extreme that most FIREees who have lived through it are doing just fine.  Of course it’s still too early to predict all the 30+ year timeframes from that crash, but all early signs are encouraging.

That's what I was saying. Treasury bonds are the "safest" but are at 0% return so really if there is large inflation it'll bleed a lot of value out of the portfolio. These are equivalent to cash really.

Also, surviving a great depression all depend on individual circumstances like spending need and how much value was the portfolio initially. If you put a model portfolio of $1M with a spending of $12k/year I got no doubt it'll survive fine. But increase spending to $70k/year then I don't think so.

That's why I just ask against individual portfolio and what are the coping strategy during severe downturn
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: nereo on January 25, 2021, 04:40:35 AM
That's why you keep bonds.  When your stocks have tanked, you take your money out of bonds for a few years until the market recovers.

Which bonds? If you get corporate bonds they'll tank as well as we've seen during march crash. And if company becomes insolvent they won't pay interest anyway. So your bonds are not worth anything if the pay are cut.

The only bonds which are guaranteed to pay are the treasury bonds.. but then we're close to 0% interest.

I can't see bond very helpful if we see a 50-70% crash tbh..

OP - I’m seeing a lot of assumptions in your posts here which suggest that you aren’t fully understanding why an X% WR has succeeded __ % of the time, as well as things like sequence of returns risk (SORR).

For example, treasury bonds, even at 0%, are held in some portfolios precisely because they can be drawn upon during market crashes (either directly in accordance with a pre-ordained IPS, or automatically through periodic rebalancing).

Contrary to your conviction, most model portfolios survive the ‘great depression’ crash just fine.  The few that fail are ones who’s start date occurred just before the crash — those that retired 5+ years before hand do just fine, even when heavily loaded with equities (that, in a nutshell, is SORR).  The ‘Great Recession’ is even more interesting... while the crash was bad, the following run up so extreme that most FIREees who have lived through it are doing just fine.  Of course it’s still too early to predict all the 30+ year timeframes from that crash, but all early signs are encouraging.

That's what I was saying. Treasury bonds are the "safest" but are at 0% return so really if there is large inflation it'll bleed a lot of value out of the portfolio. These are equivalent to cash really.

Also, surviving a great depression all depend on individual circumstances like spending need and how much value was the portfolio initially. If you put a model portfolio of $1M with a spending of $12k/year I got no doubt it'll survive fine. But increase spending to $70k/year then I don't think so.

That's why I just ask against individual portfolio and what are the coping strategy during severe downturn

Your examples above still make me think there is some confusion, particularly about the WR (which is traditionally set (“fixed”) at the start of one’s ER, unless using a variable WR).

The fact is that virtually every 30+ retirement window has had to deal with at least a 30% drop, Many have had to deal with a drop in the 50% range, and a few have been >80% (i.e. the Great Depression).  The overwhelming majority survive; the ones that don’t suffer from SORR (the crash hits in the first few years of retirement, and loss of principle proves unrecoverable).

Still, there are a myriad ways of guarding against this, most notable a bond ladder which has been suggested elsewhere. But even holding bonds and periodically rebalancing improves portfolio performance during sharp declines. As you’ve mentioned, US Treasury Bonds are currently have very low yields (e.g. 10y = 1.1%). That’s far better than the ‘zero’ of cash you, but it certainly won’t grow.  That’s ok, that’s not their function. Depending on your withdraw strategy, you can pull from your bonds during bear markets, giving your equities time to recover (and historically they have recovered in 18-36 months, either in large part or in full).  A more passive strategy is rebalancing, which will automatically transfer bonds to equities precisely when they are ‘on sale’.  A while back another user modeled how holding a 5 year bond latter and drawing from those only when markets were down until the portfolio was 100% equities reduced risk from SORR by something liike 70%.

And of course there are strategies that don’t rely on the equities market at all. REal estate, pension or SS income, etc. are not strongly correlated with market performance.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: Loren Ver on January 26, 2021, 10:11:34 AM
Yes,

In general,  we are not going to let a temporary situation like a market drop fundamentally change how we are doing things.  The goal is to just not SELL ALL THE THINGS at the low.  Since we are reasoning adults in the family, and I am in change of the finances, we don't sell when things are very low unless we HAVE TO and then only what we MUST.

As pointed out- market crashes only last a set period of time.  In our family we have chosen to plan for ~2 years, as I think the average is 18 months.  We can run longer than that if needed.  We have the ability to run very lean and still be very content. 

Now a 70% drop isn't overly common, but I have to entertain this idea for several reasons:
1. Our money has three forms: our stache is in equities, in cash, and money markets.

The money in equities is to grow, the money in cash is to be spent (~1years worth), and the money market is the emergency fund (extra mortgage payments (~2 years), out of pocket maximums for medical insurance, etc).

2.  Several of our investment are quite risky and have a lot of volatility on them so they swing more than the market.  If the market drops 35%, it isn't uncommon for them to drop 70%.  The same happens in reverse.  We have a high risk tolerance and don't panic.  These are the investments we choose to live off of year by year as they re-grow splendidly and are taxable accounts.  During great market downturns, they tank fast, but recover quickly. 

3.  We have other investment that are less volatile,  but are more like you S&P500 so not what most would consider less risky.  They usually don't crash has hard, but can also take longer to recover.

If all our investments really tank and are going to remain suppressed for an unknown period of time, we would start by not taking anything out of the market and reducing spending.  Then we can pick and choose which investments have fallen the least or recovered the most if we need to sell something, like to hit our ACA minimums for the year. 

In March 2020, when the market was going wonky due to Covid, we thought it might tank for the year, so we picked a fund that was still up 10% and pulled out enough to hit our income minimum for ACA, just in case we went into a tailspin.  Now that didn't happen, and waiting would have proven to have been much smarter, but we made the right call for the right reason with the information we had at the time.  If I had to do it again, I'd make the same call. 

Loren
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: rae09 on January 26, 2021, 01:49:45 PM
I think we'll be fine. DH still works and our rental income helps covers 40% of our monthly expenses. If necessary, I can come up with a strict budget and cut out expenses for a while until market gets better. I can also take part time consulting work that would cover our living cost so we won't have to tap into our savings.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: Digger1000 on January 29, 2021, 12:19:04 PM
I retired 4 years ago at 51. I had under a million dollars when I retired. My annual withdrawal rate is 2.3% of the amount I had at retirement. Which translates to 1.5% of my current net worth. So if the market went down 67% my withdrawal rate of that new amount would be 4.5% annually.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: DireWolf on January 29, 2021, 05:53:14 PM
I’m up so much since I FIREd in 2019 that my current spending (which has held flat since retiring) is now about what the Bogglehead’s VPW spreadsheet says is my safe spending level AFTER a 50% crash. If the market drops 50%, is it pat and continue to spend down cash and bonds. If the market is down 80%, I’m using a lot of that cash/bond money to buy equities.

I should ad that I also have a bit of pension, some passive income, and am not super far away from early SS withdrawals. I have a really good floor at that point that I could eke out an existence on if I somehow ran out of my other monies. I’ve never believed in having all my eggs in one basket.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: smoghat on January 30, 2021, 08:45:19 AM
I am 90% equities, age 53 so I figure a 40-50 year draw. No, I won’t be working if the market crashes 70%. And guess what, you won’t either. There won’t be any jobs and many existing jobs will be gone forever. My equities were down around 25% in the last year and now are at record highs. I made it through that, I’ll make it through anything. Or it’ll be so bad I won’t...and neither will you.
Title: Re: If the market crash 50-70%, would you still be FIRE?
Post by: zinnie on February 02, 2021, 08:01:50 AM
Yes. I also keep a year+ of cash to help dull the impact of a really bad year.