If you lost half what action would you take

[unclemick]

Not wanting to go off topic in the "2021 Investment Performance thread" but lets say we lost half in a down market.

How would you change doing business in your life and financial life? Could you stay the course or have to live differently for the long haul?

My action would be to stay the course and I always took that in to consideration if that scenario happened. The reason I believe I could is I have at this time 34X my expenses in cd's etc.. I'm not saying it is bullet proof but it was plan of attack so time will tell if it ever does get that bad.

Tend to stay the course. 2005 donated the house and all it's content's to Lake Pontchartrain due to Katrina - no insurance as it was over water. Moved inland. 2006 switched my 60/40 portfolio to Target Retirement (ballpark 60/40) to let Vanguard computers do rebalancing and asset mix changes as time marched on. Then along came 2008 -9 fun filled dip.

Grin. Caused some pucker but I let the computers do their thing.

Heh heh heh - 2021 Old phart with 27 years of ER. Now more like 40/60. Hopefully learned to stay the course. Big dips do get one's attention though.

 

[skyking1]

probably work a little longer and see what pans out.

 

[street]

From my first post I didn't say, but that 34x expenses in cash does include my wife SS but not my SS.
I can't see any change, in how I'm living now, but who until something like it happens. I hope I don't have to find out.

 

[NW-Bound]

Did lose like 39% from Oct 2007 to Mar 2009.

I had already rebalanced on the way down. Caught quite a few falling knives.

I just waited, and it gradually recovered. Rebalanced some on the way up again.

We had plenty of short term funds, so we kept going about our traveling in the motorhome during the whole thing.

I lost 37% in the same time frame. However, instead of buying on the way down, I was bailing out of my high flyers, particularly commodity stocks that did well during the housing construction boom. If I did not sell these, would lose a lot more than 37%. When I reloaded my stock AA, I bought other sectors.

I made a thread about it here: https://www.early-retirement.org/forums/f28/how-i-did-during-the-great-recession-72184.html

If the market crashes again, I will do the same: bail out of stocks that outperform prior to the crash, and look to buy into other sectors.

About how I live, there will be no change. My WR is only about 1%. So, it will be 2% WR if I lose 1/2 of my stash.

 

[MRG]

All of the above.

 

[CyclingInvestor]

62, retired 14 years. I did lose 53% in 5 weeks Feb-Mar 2020 with a 100% stock allocation. I took no action. Since I live on the dividend flow (which the pandemic did not affect), I just sat back and watched the show, March 7-14 from a cruise ship.

I lost just over 40% in 2008-2009. Since dividends kept being raised thruout, I was also able to do nothing then.

 

[RobbieB]

Yup, me too. Same as it ever was.

 

[FIREd]

If the loss is due to a market downturn, I'd probably do nothing and hope for an eventual market recovery. I have enough in stable value investments to see me through even a prolonged downturn.

But if the loss was permanent, and I made no change to my spending, then my WR would jump to just above 3%. It'd still be acceptable, but I would probably cut spending a bit. I do know that I'd still be fine however, since SS will eventually provide extra cushioning.

 

[Alan]

Fortunately we are at the stage of life where we don’t need our investments to live on, so I would simply maintain our AA and carry on. I started my UK SS this year, my wife starts hers later in the year plus she is applying for her US SS.

This last year and this year so far, we have not needed to make any withdrawals as we haven’t been doing extensive traveling.

 

[Bryan Barnfellow]

We only derive 43% of our income from investments (dividend growth portfolio).

Each December, when we finalize our budget for the coming year, we also prepare two additional "crisis" budgets: one representing a 25% decrease in dividend income and one with a 50% decrease. In these our life becomes more restricted; but not by a lot, for which we are grateful. That said, our dividends tend not to go down by much (if any) even if when the market swoons.

-BB

 

[Midpack]

Rebalance on the way down... and rebalance again on the way up.

With the recent market gains, my portfolio is much bigger than I expected at this point of my retirement... so while I might tighten my belt a bit if my portfolio dropped by half... I would not be destitute.

+1. Same answer.

 

[DrRoy]

Every single market drop in history has been followed by recovery to higher levels. We would just ride it out. That's what the Fixed Income tranche aka bucket is for.

+1. I would be down 29%, and still good on a 3% WR.

 

[USGrant1962]

My "think about doing something" level is 100% in FIRECalc. A 50% drop in equities, assuming bonds held, would put me slightly above that level so no, no particular action other than rebalancing.

If I got adventurous, I might buy equities right up to my ultimate 65/35 AA instead of following my current gently rising glidepath.

 

[athena53]

I keep my withdrawal rate below 3.5% and it's trending downwards. About 40% of my expenses in a normal year are charity and travel, so there's a lot of wiggle room there if worst came to worst. I've also been spending on semi-discretionary home improvements- quartz countertops in the kitchen, replacing windows and adding plantation shutters, getting the exterior painted, replacing a deck with TREX. Those would grind to a halt if things got bad.

The sad stories about people "losing all their savings" in a market downturn typically involve those who HAD to withdraw $X,000 per year to meet basic expenses even after that amount became an unsustainable % of the portfolio.

 

[street]

The sad stories about people "losing all their savings" in a market downturn typically involve those who HAD to withdraw $X,000 per year to meet basic expenses even after that amount became an unsustainable % of the portfolio.

I agree 100% on your statement and I think that is where a person can get in trouble. If you absolutely have to sell your bread and butter and is gone for future rebound and growth.

Not surprised at all that have replied, that if a large down turn or a loss of 50% permanently, sustainable was in the plan when retiring.

 

[statsman]

The opening statement, "If you lost half", is different than "If the stock market lost 50%". Well, maybe for some it isn't.

Losing "half" would be difficult for us to manage. Losing "half of the stock market" would be much easier to manage.

 

[Nature Lover]

If the portfolio dropped 50%: I'd stay the course, tax loss harvest, rebalance, as appropriate. I don't think my lifestyle would change; but out of habit, I'd be watching my discretionary spending more closely.

 

[ExFlyBoy5]

I would removed CNBC from my bookmarks and perhaps block the site.

Thankfully, we are pretty young so would just sit tight and let the market do its thing. My pension covers all our fixed expenses so for the most part, we have no need to touch the nest egg. I would probably do some tax loss harvesting, however.

I have been toying with the idea of getting a HELOC (we have no primary mortgage) in case there is a sharp market decline and there is some sort of large expense (such as a new roof...that would be pretty darn expensive right now) that would necessitate selling equities (we don't hold much cash).

 

[NW-Bound]

I have been toying with the idea of getting a HELOC (we have no primary mortgage) in case there is a sharp market decline and there is some sort of large expense (such as a new roof...that would be pretty darn expensive right now) that would necessitate selling equities (we don't hold much cash).

I recall that in the market downdraft of 2008-2009, some posters with a just-in-case HELOC reported having theirs canceled unilaterally by the bank.

 

[MrsHaloFIRE]

I would feel sad but its wouldn't impact us in a tangible way BC we don't spend that money anyways. I would mope for atleast a day though.

 

[pb4uski]

.... How would you change doing business in your life and financial life? Could you stay the course or have to live differently for the long haul? ...

We're currently only a ~3% equities, so if 50% down I would probably use a lot of dry powder and buy, but if wouldn't change our financial life at all.

 

[GravitySucks]

Hurry up and sell before the stock price goes back up.

That's how my market timing plan would work.

From my first post I didn't say, but that 34x expenses in cash does include my wife SS but not my SS.
I can't see any change, in how I'm living now, but who until something like it happens. I hope I don't have to find out.

Instead of a 50% market drop, how about 2 years of 25% inflation?
That's what worries me. The market will probably return, inflation costs are permanent.

 

[audreyh1]

Instead of a 50% market drop, how about 2 years of 25% inflation?
That's what worries me. The market will probably return, inflation costs are permanent.

Believe me, if inflation jumped to 25% for two years the stock market would drop big time!

 

[ExFlyBoy5]

I recall that in the market downdraft of 2008-2009, some posters with a just-in-case HELOC reported having theirs canceled unilaterally by the bank.

I also heard this, but our last HELOC was with Pen Fed and although I haven't looked recently, I don't they have EVER closed an account like some of the mega banks did. Of course, that doesn't mean they wouldn't do it in the future.

As an alternative, I could also just do a cash out mortgage backed by the VA.

Hopefully, it won't matter.

 

[jollystomper]

The sad stories about people "losing all their savings" in a market downturn typically involve those who HAD to withdraw $X,000 per year to meet basic expenses even after that amount became an unsustainable % of the portfolio.

Interesting. I see many more "lost all their savings due to a scam/mental issues" stories than "lost all their savings due to a market downturn" stories. Gullibility and/or mental deterioration may be more of a danger than market downturns.