Safety Margins

[Hyperborea]

If my portfolio fell by half, I'd salute the Norwegian widow, reread page 108, on Mr Market in my Ben Graham, check the SEC yield of my portfolio (should take 5- 10 minutes) and get back to ER. I suffer from the illusion, a 50-60% drop in the S&P 500 should be 'a planned possible event' in todays market environment. Bernstein, Bogle, or Ben Graham - take your pick - they understand 'Markets Fluctuate'.

Sure, if the S&P500-like portion of my portfolio fell by 50% I wouldn't be too concerned. But if my total portfolio dropped by 50% I would be worried. That portfolio in retirement will be something like:

• 20% Fixed Income (CDs, short term government bonds, etc)
• 80% Equity - widely diversified perhaps such as:
  • 10% Total US market - Wilshire 5000
  • 10% Large US Value
  • 10% Small US Value
  • 20% EAFE
  • 10% Emerging Markets
  • 5% REITs
  • 5% Precious Metals
  • 5% Timber
  • 5% High Yield Bonds

Such a large drop in the first year of FIRE with such a highly diversified portfolio would be a large danger sign in my opinion. If it happened then I would think that it would be highly advisable to stop sucking money from it and make some more while my skills were still reasonably fresh and able to bring in more money.

If I waited just a couple of years to "see what happens" then two bad things happen. First, my skills get older and less able to bring in good remuneration. Second, the continued draw from the portfolio increases the odds of failure. It's quite interesting to play with portfolio failure and see that failures can often be turned into winners with some early corrective action.

 

[John Galt]

Wow, now that's diversification!

In my case, for purposes of illustration let's say
I have 50% in real estate and 50% in bonds/bond funds.
Actually this is pretty accurate. Now, let's assume
I lost 100% of the bonds. Wiped out. I still would
not have to return to work. I would simply sell one of our two (2) residences (or rent it out full time), reverse
mortgage the other one, and draw my SS. It wouldn't be
the ER I had planned for, but it would still be
a good life. Keepin' the wife working a while wouldn't hurt either

John Galt

 

[ESRBob]

Hanging on to a thread of work life through some part- time work could be an important long-run lifestyle life-preserver for ER couples, living on earnings from assets, who go through a divorce somewhere down the road and find themselves without nearly the income they started ER with. Again, those with personal pensions may not have to worry about this as much, but those with assets that get split in half (or perhaps you are the part of the couple that receives less than half of the assets!) may appreciate having kept a little something going on the work front.

It seems to me that if we are really planning long term, then we have to think about things like that.

(based on the assumption that 1/2 of a couple's income is not enough to live the same lifestyle as a single)

ESRBob

 

[Super Lurker]

(based on the assumption that 1/2 of a couple's income is not enough to live the same lifestyle as a single)

There's an old saying: Two can live as cheaply as each one
separately added together.

Able to leap over tall building in two, sometimes three, bounds