Market Correction in Retirement

[FedExCourier]

Has anyone experienced a 20% or more market correction the day after retiring? If so, what did you do to deal with the drop? What advice would you give to the retiring class of 2014?

 

[REWahoo]

Has anyone experienced a 20% or more market correction the day after retiring?

How many times has the market corrected 20% or more in one day?

 

[brewer12345]

How many times has the market corrected 20% or more in one day?

It happens all the time, but the gubmint hushes it up.

 

[JPatrick]

October 19, 1987 the Dow fell 22.6% resulting in a loss of 500 billion $$, most of it mine...
I was still wo*king so I just carried on and all was well in 12 months or so.

Fast forward to today and retirement. I keep 2 years living expenses in cash equivalents in the event of a major down year or two. This really doesn't amount to much as most expenses are met by pensions. That then gives me leaway to do some beneficial tax loss selling and some bottom fishing.

 

[REWahoo]

Originally Posted by FedExCourier
Has anyone experienced a 20% or more market correction the day after retiring?

How many times has the market corrected 20% or more in one day?

October 19, 1987 the Dow fell 22.6% resulting in a loss of 500 billion $$...

OK, that's one.

Anyone here who retired on 10/18/87?

 

[DoWright]

Perhaps Ms./Mr. FedEx Courier was speaking hyperbolically and meant "has anyone experienced a 20% drop in the value of their portfolio soon after they retired?' I would suspect that anyone who retired during Q1, Q2, or Q3 of 2008 saw such an impact to her/his portfolio.

I would think that this would be quite difficult to stomach, but this is one of the main reasons that you need to keep a considerable amount of cash so as to enable you to use that cash instead of having to sell stocks when they are at depressed levels...

David

 

[REWahoo]

Perhaps Ms./Mr. FedEx Courier was speaking hyperbolically and meant "has anyone experienced a 20% drop in the value of their portfolio soon after they retired?'

Perhaps.

It is also entirely possible the OP is among those who may believe a sudden drop of this magnitude is not an uncommon occurrence - thus the reason for my question.

 

[DoWright]

Perhaps.

It is also entirely possible the OP is among those who may believe a sudden drop of this magnitude is not an uncommon occurrence - thus the reason for my question.

Fair enough....

btw, what's OP?

 

[REWahoo]

btw, what's OP?

http://www.early-retirement.org/for...slang-frequently-used-on-the-forum-34884.html

 

[ejman]

I don't know about experiencing such a drop right on the the day after retiring but the market dropped close to 50% in the three years prior to my retiring on 12/31/2002. I had no idea at the time whether it would continue dropping like a stone or not but lady luck was kind and ER then turned out to be a great decision.

 

[Animorph]

-20% is when I start paying attention. Anything less is just business as usual.

I retired in late November, 2007. I had built up a large cash reserve since a pension and two SS benefits would not be online, and we had college expenses for two kids. We were going to spend way more than 4% of our portfolio. While that would have been sufficient, DW wasn't ready to pull the plug. So we ended up with just a modest draw on the portfolio and were able to reinvest a lot of the cash.

 

[Alan]

I don't know about experiencing such a drop right on the the day after retiring but the market dropped close to 50% in the three years prior to my retiring on 12/31/2002. I had no idea at the time whether it would continue dropping like a stone or not but lady luck was kind and ER then turned out to be a great decision.

That is a much harder scenario IMO. I remember 3 straight losing years at that time, that last year being an IRR of -11%, and DW saying, "We are doing the right thing aren't we?"

I don't know if I could have stayed the course of a high equity allocation if we'd had a 4th bad year

 

[DoWright]

http://www.early-retirement.org/for...slang-frequently-used-on-the-forum-34884.html

thanks

 

[FedExCourier]

Sorry, I was using hyperbole with my question. My 401k happens to have a trust savings fund paying 2% interest as one of the choices for a cash "bucket". Other than a short term bond index or equivalent, I'm a bit reluctant to place a large amount of my safe money into bonds right now with the talk of rising interest rates...
Just trying to get your experiences with the really hard corrections and what you have learned.

 

[daylatedollarshort]

Sorry, I was using hyperbole with my question. My 401k happens to have a trust savings fund paying 2% interest as one of the choices for a cash "bucket". Other than a short term bond index or equivalent, I'm a bit reluctant to place a large amount of my safe money into bonds right now with the talk of rising interest rates...
Just trying to get your experiences with the really hard corrections and what you have learned.

Here is a list of S&P annual returns since 1973 -

Historical Stock Market Returns Since 1973

 

[adrift]

Anyone here who retired on 10/18/87?

No. But, we started to. The week prior to Black Monday we enrolled in our 401K plan. The first contribution wasn't until the Friday after Black Monday as that was our payroll cycle. It was the first time we purchased any equities.

Less than 15 years later, we ER'ed in 2002. Well, sort of. Although it wasn't planned when we left in 2002, we took a few part time programming contracts in the subsequent years.

As noted above, retiring in 2002 was indeed an interesting time.

 

[donheff]

FedEx. Not sure what you are actually interested in but a lot of us retired just before the last recession and saw major hits to our portfolios. Anecdotally, it appears most of us did not panic and recovered nicely regardless what our AA was. But that was then. Next time could be different.

 

[LOL!]

Here is a list of S&P annual returns since 1973 -

Historical Stock Market Returns Since 1973

It might be more telling to show the drops from high-water marks to intermediate bottoms. For example, if market goes up 10% from Jan to May, then drops 10% in May, people get very very nervous even though the market would be about even for Jan to May. Such volatility happens more frequently than once every 4 years. For example, what happened in August 2011? Yet the link shows 2011 had a +2% gain for the year.

At morningstar.com, one can chart "rolling returns" which also shows some action as well.

My bottom line: Hope for those big drops so that one can rebalance and make lots of money.

 

[REWahoo]

FedEx. Not sure what you are actually interested in but a lot of us retired just before the last recession and saw major hits to our portfolios. Anecdotally, it appears most of us did not panic and recovered nicely regardless what our AA was.

+1

Here are a couple of recent threads on this subject:

http://www.early-retirement.org/forums/f28/how-i-did-during-the-great-recession-72184.html
http://www.early-retirement.org/forums/f28/firecalc-vs-rew-64705-3.html#post1447847

 

[MichaelB]

Sorry, I was using hyperbole with my question. My 401k happens to have a trust savings fund paying 2% interest as one of the choices for a cash "bucket". Other than a short term bond index or equivalent, I'm a bit reluctant to place a large amount of my safe money into bonds right now with the talk of rising interest rates...
Just trying to get your experiences with the really hard corrections and what you have learned.

There will always be talk about something, and it rarely leads to useful investment advice. The talk about rising rates is now in its fourth year.

 

[NYEXPAT]

OK, that's one.

Anyone here who retired on 10/18/87?

I retired on the 19th so I guess I don't win the prize.

 

[walkinwood]

I wrote about our experiences in '08-09 in these posts. We ER'd in May 08. Others shared their experiences in the threads and also their amazing support & advice.

http://www.early-retirement.org/forums/f28/end-of-year-1-of-er-44084.html
http://www.early-retirement.org/forums/f28/2009-actuals-v-s-budget-48044.html
http://www.early-retirement.org/forums/f29/er-on-hold-47618.html
http://www.early-retirement.org/forums/f29/three-years-of-er-55986.html

 

[Andre1969]

Jut out of curiosity, I went through my records to see how many times I've experienced a drop of ~20% or more. I've been keeping track since March 1998. Now, none of these were overnight drops, but were still some pretty rapid wipeouts. Also, they represent drops in total values, so by the time you work in additional assets, the actual percentage was probably worse. Anyway, here goes...

1) December 2000 to March 2001: -20%
2) June 2001 to September 21, 2001: -26.6%
3) March 2002 to July 2002: -24.3%
4) August 11, 2008 to November 20, 2008: -44.2%
5) January 6, 2009 to March 9, 2009, -19.6% (okay, not 20%, but darn close!)

So, in the overall scheme of things, I guess a 20% correction is pretty rare. And even though I've experienced five of them in the 16 years I've been seriously investing, they really centered around two major events: That period involving the double-whammy of the tech bubble burst/September 11 Tragedy, and the Great Recession.

Now, I did have another drop in the summer of 2010 that seemed like a big deal at the time, but in retrospect it was only a 14.6% drop from April to July. I think that one seemed scary at the time because I had just recovered all of my "Great Recession" losses and was afraid that we were about to go through it all again.

In 2011 I had another fairly sharp drop, losing 14.2% in the period between 7/7 and 8/8.

As for lesser, ~10% drops, haven't had one of those in awhile. They used to seem somewhat common before the Great Recession. Looking back, these pop out at me...
1) March 2000 to April 2000 (but recovered by June)
2) June 2004 to August 2004 (recovered by October)
3) May 2006 to June 2006 (recovered by September: This one "hurt" pretty bad though, because by this time I had a lot more invested, so it was a ~$30,000 loss)
4) July 2007 to August 2007 (recovered by September)
5) 12/31/07 to January 2008 (recovered by February)
6) 6/23/08 to 7/8/08 (9.5% loss, recovered by 8/11, and then the big plunge into the Great Recession started)

Also, I don't know how much consolation this brings, but as long as I've been keeping records, I've never experienced more than three down months in a row. However, my record keeping, for some reason, was very spotty in 2002. I only have three data points: 3/6/02, 7/22/02, and 11/21/02. That March-July period was one of those >20% down periods. However, I don't know if it went down steadily in April, May, June, and then bottomed in July, or if it was spiky.

My record keeping in 1998 was very spotty as well, with only 3/5/98 and 12/22/98 as data points.

Anyway, hopefully these 20%+ downturns will continue to be somewhat rare events, and something that we recover quickly from!

 

[NW-Bound]

I wrote about our experiences in '08-09 in these posts. We ER'd in May 08. Others shared their experiences in the threads and also their amazing support & advice.

http://www.early-retirement.org/forums/f28/end-of-year-1-of-er-44084.html
http://www.early-retirement.org/forums/f28/2009-actuals-v-s-budget-48044.html
http://www.early-retirement.org/forums/f29/er-on-hold-47618.html
http://www.early-retirement.org/forums/f29/three-years-of-er-55986.html

These threads surely bring back memory of the scary period that we went through together. I was a newcomer then, and some of the posters that I exchanged posts with have disappeared. I recall that commiserating about portfolio loss during that dark period was even more "enjoyable" than bragging about our riches as we do now.

 

[REWahoo]

I recall that commiserating about portfolio loss during that dark period was even more "enjoyable" than bragging about our riches as we do now.

Followed closely by the enjoyment of wishing something "nice" would happen to those who dropped in to say 'I told you so'...