Anyone else retire in 1999/2000?

[audreyh1]

Are there any other folks who had the "luck" of retiring right before a major bear market?

How did you do?

I retired in late 1999. I had a "lump sum" - a large chunk of company stock - that I decided should be averaged into a diversified portfolio over a 2 year period - the typical advice of 1 year didn't seem long enough. I was nervous about the NASDAQ runup - it seemed crazy. I was in the tech industry myself, and had NEVER seen anything like it. By 2002, I had stretched out my averaging in period to 3 years.

This is probably the major thing that saved my butt. The second was that I tended to lean towards more value, small company, foreign stocks and REITs. These didn't do nearly so bad as the growth stocks. REITs did great.

Who EVER imagined we would get three down market years in a row? - pretty much nobody.

By 2003, my portfolio recovered and then some.

I was very lucky......

But now I feel very "seasoned". It was a long bad time. My personal circumstances could have been way worse. I survived....

Audrey

P.S. My husband thinks that I am a financial genius. 8)

 

[Nords]

But now I feel very "seasoned".  It was a long bad time.  My personal circumstances could have been way worse.  I survived....

I think you win the retirement-timing award!

We funneled our cash into our "dream house" in 2000, spouse left active duty in early 2001, I retired in mid-2002. We weren't putting new money into our investments but we were sure trying to figure out where the bottom was. The week after 9/11 was the worst, and 2002 mostly set new market lows without abusing our portfolio so badly.

We'd recovered by the end of 2003 also.

20 years from now, investors with an entire decade's worth of experience will look at us like we're crazy and tell us "You were investing back then, when all you had was the Internet?!?" and "Well, yeah, sure, no one knew what was happening in those days or how to stop it, but this time it's different!"

And maybe the NASDAQ will be back to 5000 by then...

 

[brewer12345]

audrey, I think your story should give courage to a lot of would-be ERs who are on the fence. Even though you retired at the start of a bubble implosion, you did well because of a conservative approach and a well diversified portfolio.

 

[cute fuzzy bunny]

I went in that time frame.

I was an idiot for selling my company stock from 1993-2000 and diversifying, as the stock kept doubling. Then in 2000 when it dropped 80%, I became a genius. Did a ton of short term trading, giving as good as I got but i'm not sure the results were worth the effort. When I sold almost everything at Nasdaq 5000, I was even smarter. I lost a little of my brilliance when I tried nibbling at the nasdaq on the way back down, at 3000 and 2000. Oh well, capital losses arent the worst thing in the world, at least I kept most of my nut.

The big lesson learned there was that asset allocation and diversification are good ideas, and that sometimes doing the right thing feels pretty wrong...even for a long time...but stick with it.

I sat in cash for a little while, then put some money into dodbx and oakbx, bought a chunk of EOP and EQR after 9/11. Cashed it all back out a couple of years later for a nice profit through the 'mini bear'. Sold my mcmansion, bought a smaller place in 2003. Reinvested all of it (eventually) into vanguard funds after a lot of learning done here.

Lessons learned since the one about relative investing 'intelligence' is that you're your own worst enemy most of the time. Dont hold onto stuff that you cant justify the valuation of, dont pass up buying opportunities, otherwise if the values arent absolutely screaming in your face 'buy!' or 'sell', just sit there and do nothing.

The one thing that kept coming back to me was that these 'bears' are usually short term and their damage is usually done in a year or two or three...and they dont happen often. So while I was 'tested' early, I figured I was pre-disastered in my ER.

I suppose had I dropped out on a shoestring and did a buy and hold on the hot stocks and funds of the day, I'd have been really and truly #%#$ed

 

[Andre1969]

My old supervisor retired at the end of 2001, AFTER the crash! IIRC, things didn't really bottom out until around October '02, but I know it put a hurting on him. Still, he was pretty prepared for it. He was ex-military, and had a good pension. Plus the pension from our company. He had also worked a second job for years at a grocery store, and had a pension from them too I believe. His house would have been mostly paid off by that time, unless he refinanced and took a bunch of cash out.

I do remember he was well-off enough to buy a new F-150 in 2000, and a new 5th wheel trailer in 2001. But I do remember he said he had a ton of Boeing stock in his 401k. Now through 1998-most of 2000, Boeing stock had been around $30-45 per share, but at the end of 2000/early 2001 it ran up to around $70. When he retired it was down to around $40 per share. I don't know how big of a portion of his entire portfolio that boeing stock was, though. I think he had around 600 shares. Which means that portion would have dropped from around $42,000 at its high to $24,000. I'd imagine that it wasn't enough to hurt him, though.

I haven't heard from him in awhile now, but I do remember he liked to go down to his trailer, which was parked 24/7 at some kind of campground for veterans, and he enjoyed going out on his boat, and doing karayoke with his veteran buddies. When I started working with him in 1993, he was really stressed out and could snap at the drop of a pin, but as he got a bit older he really mellowed out. I know the prospects of a comfortable retirement were one thing that really helped him. I remember when he trained his replacements, who were total anal-retentives, he finally just said "I know you two are going to turn this place into a rat-f*ck, but I don't care. I'll be gone!" And he said it with a smile on his face! And his prophecy came true. Those two did. But ultimately they turned on each other and did themselves in.

 

[WilliamG]

I retired 3/1/2000. This actually turned out to be fortunate circumstances since I had begun several months earlier to retool portfolio. As well as diversifying stock more slice and dice we laddered most of our already taxed money into treasuries to provide cash flow until I turned 59 1/2. Cashed in last 5 year note last year; was earining 6.25%. Also put maximums in 2000 and 2001 into IBonds which are at 3+% real rate of return.
I think we made some prudent decisions, but have to admit our "timing" was extraordinarily lucky.... bill

 

[Rich_by_the_Bay]

To offset the risk of a crappy market in the first few years after retirement wouldn't it make sense to start caching away 3 or 4 years of anticipated living expenses into something safe well before you retire?

If you start enough in advance, you can sweep over the cash now and then when the market is cooperating. Granted, it takes that money off the table should the market go up in those last few years pre-FIRE, but it is only a portion of total savings, and can be counted as part of your "bond" type allocation.

Seems very reassuring to know that you can wait out a bad turn at least for a few years when it matters most.

 

[cute fuzzy bunny]

rich - that makes sense for the entire time you're retired...and for some people even before they walk out the door...maybe not 3-4 years, but at least a couple of years in something liquid and not too volatile.

 

[Nords]

To offset the risk of a crappy market in the first few years after retirement wouldn't it make sense to start caching away 3 or 4 years of anticipated living expenses into something safe well before you retire?

Sure, that makes sense, and that's what people should do, but it can also mean that people will end up with 12-16% of their retirement portfolio in cash.

For a marginal portfolio, after four years it might not have the recovery strength to handle additional 4% withdrawals. And if the person overshot the mark, or decided to start an ER with a 6% SWR and cut back later, well...

I think this last recession nailed the people who said "Hey, I have over $1M in Cisco, all I need to do is sell a few shares a year and I'll be making 15% for the rest of my life!" One of them is a friend of my FIL who believed the broker that invested his retirement lump sum in tech stocks in early 1995. Shortly after that he realized that he had the down payment & cash flow for a very nice home in San Francisco, so they took out a 30-year mortgage and started enjoying the good life. It worked great for five years, but.

 

[Rich_by_the_Bay]

Sure, that makes sense, and that's what people should do, but it can also mean that people will end up with 12-16% of their retirement portfolio in cash.

I've been living with the numbers in the last month or two to get a gut-level sense of how to play this game. Given the sense of reassurance, and the psychological freedom to invest the remaining 86% more "aggressively" (read: "more volatile"), for me that 15% in cash or cash-like investment is well worth it.

If I had to decide today:
4-5 yrs of income in cash+short term federal bonds, munis, etc. - the income buffer (e.g. 15%) at SWR
70% in stocks, well spread out, thank you, and finally...
15% in more corporate type bonds or total bond index.

Then:
Good years for stocks: tap the winners to feed the income buffer.
Bad year for stocks: feed the beast mostly from bonds
Bad year for both: drill deeper into the income buffer account.
Re-allocate annually as needed.
Reset my 4% to real asses q5y

If the "bad year all round" persisted beyond 2 years, invoke an expense reduction plan as needed but at least I will have had time to prepare for it without panic.

I am open to better strategies, but that one passes the sanity check for my style.

 

[REWahoo]

If I had to decide today:
4-5 yrs of income in cash+short term federal bonds, munis, etc. - the income buffer (e.g. 15%) at SWR
70% in stocks, well spread out, thank you, and finally...
15% in more corporate type bonds or total bond index...

Rich, of course every person is different and has different tolerance levels for market volativity. Sounds like you've got a huge pair cast iron constitution to be able to live with 70% stocks in your retirement portfolio. No way I could sleep at night with anything north of 50-60%.

You Da Man!!!

 

[Rich_by_the_Bay]

Rich, of course every person is different and has different tolerance levels for market volativity. Sounds like you've got a huge pair cast iron constitution to be able to live with 70% stocks in your retirement portfolio. No way I could sleep at night with anything north of 50-60%.

Even with 5 yrs of anticipated income tied up in cash? That seems to even it up v. 60/40 when the 40 includes corporate bonds and the like.

Studies I have seen say that 70/30 isn't a whole lot different from 60/40.

 

[REWahoo]

Even with 5 yrs of anticipated income tied up in cash? That seems to even it up v. 60/40 when the 40 includes corporate bonds and the like.

Studies I have seen say that 70/30 isn't a whole lot different from 60/40.

I'm not saying it isn't the right thing to do, just that it isn't the right thing for me to do. I'm currently at ~20% cash, 40% stocks, 40% bonds, moving to ~15% cash, 55% stocks, 30% bonds. That's my comfort zone.

 

[audreyh1]

audrey, I think your story should give courage to a lot of would-be ERs who are on the fence.  Even though you retired at the start of a bubble implosion, you did well because of a conservative approach and a well diversified portfolio.

That's one reason I shared it!  I see so many retirees today who fret about the market being "so overvalued".  Well - I don't know about today (actually - IMO if it is it's not by much), but in 1999 it was definitely overvalued!  

The market either always "feels" overvalued - which makes a person to afraid to invest.  OR it "feels" way too risky because of a recent correction - which makes a person afraid to invest.  You get stuck waiting all the time.  I know!  I wasted a lot of precious investment time waiting for the market to "feel safe" in the early 90s!

You just have to come up with an "all season" investment plan and not worry about near term timing.

OK - easier said than done I admit!

Audrey

 

[audreyh1]

Rich_In_Tampa - your X years of living expenses in short term instruments. Well for many people the x% in cash/bond part of their portfolio plays that very role - as well as the role of diversifier for stocks (used for rebalancing).

Audrey

 

[Rich_by_the_Bay]

Rich_In_Tampa - your X years of living expenses in short term instruments. Well for many people the x% in cash/bond part of their portfolio plays that very role - as well as the role of diversifier for stocks (used for rebalancing).

Gotcha. Agree.

Do you think that by splitting off the cash piece from the bond piece you can better respond to years when both stocks and bonds are lackluster (i.e. by digging a little deeper into your cash for a couple of years, and letting stocks and/or bonds recover, kind of like a shock-absorber)?

REWahoo: you have a good point about this being a bit stock-rich for a retirement allocation; maybe it needs to be reigned in a bit, especially after the first few years of ER.

 

[cute fuzzy bunny]

I'm not saying it isn't the right thing to do, just that it isn't the right thing for me to do. I'm currently at ~20% cash, 40% stocks, 40% bonds, moving to ~15% cash, 55% stocks, 30% bonds. That's my comfort zone.

Wuss.

 

[REWahoo]

Wuss.

But a wuss who sleeps well, unlike certain people who require chemical assistance :.

Hmmmmm. Did you consider your problem might actually be "asset allocation induced insomnia"?

 

[unclemick]

Hmmm

At the height - my Lifestrategy mod(a quasi 60/40) current yield got down to the 2.5% range as valuations balooned. A dollop of REIT Index and Norwegian widow dividend stocks got me to 2.9% overall portfolio wise.

Still old school - current yield to paraphrase Yogi - is real money.

Hindsight being 20/20 - Wellesley would have saved me from all that asset allocation/correlation MPT crap and been waaay simpler.

heh heh heh heh - lead sled dog in my old age is VG Target 2015.

Wuss is good - I can live with that.

 

[sgeeeee]

Are there any other folks who had the "luck" of retiring right before a major bear market?

Back in 1996, I set a retirement date of April 1, 2001. That was the date when DW and I became vested in a pension program at work. But we got cold feet when the market was still down. We decided to wait till October when I had more stock options become exerciseable. It has turned out to be fairly easy for me to work as little as 6 to 10 days per month and get paid about 2/3 of our annual expenses. So I am still not completely retired.

Your story is inspiring. You are a genius.

 

[audreyh1]

Do you think that by splitting off the cash piece from the bond piece you can better respond to years when both stocks and bonds are lackluster (i.e. by digging a little deeper into your cash for a couple of years, and letting stocks and/or bonds recover, kind of like a shock-absorber)?

Not quite.  Different duration bonds behave very differently over time.  I think what is prudent is to have some of your bond funds be high-quality short-term instruments - say with 2 to 3 years average duration.  Say you have at least 2 years expenses (withdrawal needs) in cash, then you have at the next 3 years expenses in short duration bond funds.  In this scenario the bond funds have time to recover from a correction.  In most cases they should outperform cash during this time frame.  So at 4% for 5 years of withdrawals we're talking about at least 20% of the portfolio in cash and short-term bond funds.

Personally, I tend to keep ALL of my bond funds on the short-to-intermediate side (in other words I avoid long duration bonds) because asset allocation theory shows that the shorter duration instruments make a better diversifier for rebalancing against equities over the long run.  [Reference - Frank Armstrong "Investing for the 21st Century"]

Audrey

 

[Rich_by_the_Bay]

Not quite. Different duration bonds behave very differently over time. I think what is prudent is to have some of your bond funds be high-quality short-term instruments - say with 2 or 3 year average duration. Say you have at least 2 years expenses (withdrawal needs) in cash, then you have at the next 3 years expenses in short duration bond funds. In this scenario the bond funds have time to recover from a correction. In most cases they should outperform cash during this time frame. So at 4% for 5 years of withdrawals we're talking about at least 20% of the portfolio in cash and short-term bond funds.

Thanks. That's helpful, and a bit less paranoid than my initial model. 2 years in cash + 3 years in short-duration bonds (gov't, corporate or blend?).

So, is your overall allocation (stocks:bonds) incidental, as long as you have 5 yrs in bonds? Or do you add additional bonds above these needs to shoot for your 70:30, 60:40 or whatever?

 

[audreyh1]

My current allocation is 55% equities, 45% cash and bonds.  This is pretty conservative.   I would be comfortable with a 60:40 split, and I will probably allow my portfolio to gradually drift to that ratio over time.

So - yes, I am obviously holding well more than 5 years of needs in the cash and bond portion.

Another function of the cash/bonds portion is to rebalance the portfolio when equities take a hit.  Unless you have more than say 5 years of expenses in that portion, you won't have any cash/bonds left over to take advantage of buying more equities when they are lower.

BTW - Frank Armstrong recommends his clients hold 7 years of expenses in cash/high quality short-term instruments (his stuff is all on the net), and to rebuild that portion of their portfolio from equities only in years when equities go up in value.

Audrey

 

[Rich_by_the_Bay]

BTW - Frank Armstrong recommends his clients hold 7 years of expenses in cash/high quality short-term instruments (his stuff is all on the net), and to rebuild that portion of their portfolio from equities only in years when equities go up in value.

Yes, I noticed that. Sounds great if your bundle is pretty large, but 28% in cash seemed high even to me, assuming your holdings are in the "25 x expenses" range.

 

[audreyh1]

Yes, I noticed that. Sounds great if your bundle is pretty large, but 28% in cash seemed high even to me, assuming your holdings are in the "25 x expenses" range.

No - that's not 28% in cash.  That 28% includes bonds [high quality short-term instruments includes short duration bond funds that hold government and top-rated corporate debt].  If you are looking out at a 7 year time frame, then the last few years of expenses can be in bonds with even a 3 to 5 year average duration and you should be fine.  Think of it more as maintaining a "ladder" of various durations:  cash, ultra-short (or low duration) bond fund, short-term bond fund, intermediate-term bond fund.  Something like that.

Theoretically you could hold as little as 4% in cash and still do this.

Audrey