Author Topic: If the market crash 50-70%, would you still be FIRE?  (Read 6434 times)

soccerluvof4

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Re: If the market crash 50-70%, would you still be FIRE?
« Reply #50 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

ixtap

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Re: If the market crash 50-70%, would you still be FIRE?
« Reply #51 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!

ardrum

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Re: If the market crash 50-70%, would you still be FIRE?
« Reply #52 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). 


soccerluvof4

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Re: If the market crash 50-70%, would you still be FIRE?
« Reply #53 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.

Roland of Gilead

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Re: If the market crash 50-70%, would you still be FIRE?
« Reply #54 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.

blue_green_sparks

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Re: If the market crash 50-70%, would you still be FIRE?
« Reply #55 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.


Dicey

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Re: If the market crash 50-70%, would you still be FIRE?
« Reply #56 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%.

sui generis

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Re: If the market crash 50-70%, would you still be FIRE?
« Reply #57 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.

GreenEggs

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Re: If the market crash 50-70%, would you still be FIRE?
« Reply #58 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. 


















ixtap

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Re: If the market crash 50-70%, would you still be FIRE?
« Reply #59 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?

GreenEggs

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Re: If the market crash 50-70%, would you still be FIRE?
« Reply #60 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.   

nereo

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Re: If the market crash 50-70%, would you still be FIRE?
« Reply #61 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 - Iím seeing a lot of assumptions in your posts here which suggest that you arenít 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 Ďgreat depressioní crash just fine.  The few that fail are ones whoís start date occurred just before the crash ó those that retired 5+ years before hand do just fine, even when heavily loaded with equities (that, in a nutshell, is SORR).  The ĎGreat Recessioní 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 itís still too early to predict all the 30+ year timeframes from that crash, but all early signs are encouraging.

stoaX

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Re: If the market crash 50-70%, would you still be FIRE?
« Reply #62 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.

soccerluvof4

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Re: If the market crash 50-70%, would you still be FIRE?
« Reply #63 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.

helloyou

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Re: If the market crash 50-70%, would you still be FIRE?
« Reply #64 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 - Iím seeing a lot of assumptions in your posts here which suggest that you arenít 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 Ďgreat depressioní crash just fine.  The few that fail are ones whoís start date occurred just before the crash ó those that retired 5+ years before hand do just fine, even when heavily loaded with equities (that, in a nutshell, is SORR).  The ĎGreat Recessioní 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 itís 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

nereo

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Re: If the market crash 50-70%, would you still be FIRE?
« Reply #65 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 - Iím seeing a lot of assumptions in your posts here which suggest that you arenít 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 Ďgreat depressioní crash just fine.  The few that fail are ones whoís start date occurred just before the crash ó those that retired 5+ years before hand do just fine, even when heavily loaded with equities (that, in a nutshell, is SORR).  The ĎGreat Recessioní 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 itís 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 (ďfixedĒ) at the start of oneís 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 donít 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 youíve mentioned, US Treasury Bonds are currently have very low yields (e.g. 10y = 1.1%). Thatís far better than the Ďzeroí of cash you, but it certainly wonít grow.  Thatís ok, thatís 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 Ďon saleí.  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 donít rely on the equities market at all. REal estate, pension or SS income, etc. are not strongly correlated with market performance.

Loren Ver

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Re: If the market crash 50-70%, would you still be FIRE?
« Reply #66 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

rae09

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Re: If the market crash 50-70%, would you still be FIRE?
« Reply #67 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.

Digger1000

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Re: If the market crash 50-70%, would you still be FIRE?
« Reply #68 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.

DireWolf

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Re: If the market crash 50-70%, would you still be FIRE?
« Reply #69 on: January 29, 2021, 05:53:14 PM »
Iím up so much since I FIREd in 2019 that my current spending (which has held flat since retiring) is now about what the Boggleheadís 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%, Iím 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. Iíve never believed in having all my eggs in one basket.

smoghat

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Re: If the market crash 50-70%, would you still be FIRE?
« Reply #70 on: January 30, 2021, 08:45:19 AM »
I am 90% equities, age 53 so I figure a 40-50 year draw. No, I wonít be working if the market crashes 70%. And guess what, you wonít either. There wonít 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, Iíll make it through anything. Or itíll be so bad I wonít...and neither will you.

zinnie

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Re: If the market crash 50-70%, would you still be FIRE?
« Reply #71 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.