Approximately how much will my investment portfolio decline when bull market ends?

[galeno]

I'm not scared at all. Our port was actually up in 1987 because we hung on.

2000-2002 were very scary because our port lost value three years on a row. I felt sick rebalancing into stocks watching our portfolio's value melt away.

We started 2008 with a 60/40 port. In 2009 we over rebalanced to 70/30.

Nope. Not scared. 30 years of investing. 3 very scary market meltdowns.

[target2019]

This interactive chart from Vanguard does not answer the OP question directly, but the perspective it gives is very useful.

[audreyh1]

Quote:

Originally Posted by Gumby I seem to recall all correlations running to 1.0 in the recent Great Recession; diversification provided no protection. Edit to add link to correlation matrices (see Table I and II) http://www.rinehartwealthmanagement....newsletter.pdf

Not correct. Cash did fine, and Treasuries gained in value. High quality bond funds like VBISX did well.

It's a good example of not ignoring cash as an asset class which I note the newsletter omitted. 2008 was a great example of how having cash gives you money to rebalance with when a bunch of your other assets have been clobbered.

[audreyh1]

Quote:

Originally Posted by W2R You are to be commended for thinking about the range of decrease and preparing in the event that such a crash should occur again. One of the computations that I like to do each year, is to figure out the percentage of my withdrawal relative to my portfolio's value at its lowest (in March, 2009). That gives me more confidence in my ability to survive a similar crash, if/when that occurs. Of course, there could always be an even worse crash, but I know from experience that I can live on a lot less than I have been spending in retirement. So, some major belt-tightening would be my immediate response to an even worse crash.

+1

I do the same what-if benchmarking. Assume my current 53/47 portfolio takes the same hit it experienced in 2008, -27.5%, after withdrawal and see how much that cuts my next year withdrawal (which is a percentage of the total portfolio value every Jan 1).

[Midpack]

I've seen these charts of past history several times, just one example...answers for everyone!

[edit: These are annualized returns. Nice to note worst case returns turn positive in 5-10 years for all but the most extreme asset allocations. Past performance is no guarantee of future results]

[audreyh1]

Quote:

Originally Posted by Midpack I've seen these charts of past history several times, just one example...answers for everyone!

That chart is showing annualized returns - just so folks realize.

For example, the worst 3 year period for 80/20 portfolio was -10.5% per year. You have to compound them together to get the total loss over that 3 year period. So it will be worse than -31.5% over those 3 years.

[Gatordoc50]

I never hear anyone talk about the 9/11 crash. Not only was it devastating to equities and the economy but the policies enacted to right the ship can be directly linked to the 2008 crash. Is it because we don't want to give credit to the terrorists for nearly collapsing the entire world economy? 12 years later and we are still reeling. I guess it goes to show how Wall Street is the framework of our entire economy. Scary stuff.

[Midpack]

Quote:

Originally Posted by audreyh1 That chart is showing annualized returns - just so folks realize. For example, the worst 3 year period for 80/20 portfolio was -10.5% per year. You have to compound them together to get the total loss over that 3 year period. So it will be worse than -31.5% over those 3 years.

Good clarification, thanks. I've edited the post accordingly.

[Gumby]

Quote:

Originally Posted by audreyh1 Not correct. Cash did fine, and Treasuries gained in value. High quality bond funds like VBISX did well. It's a good example of not ignoring cash as an asset class which I note the newsletter omitted. 2008 was a great example of how having cash gives you money to rebalance with when a bunch of your other assets have been clobbered.

To my mind, diversification always meant that you would own some things go up when others go down. Not that they would just suck less by comparison. Being in a last row seat in a crashing airplane is scarcely better than being in the first row.

Cash is unique. Yes, you're protected to the downside, but you also have no upside when times are good. But you are right about Treasuries - they are the "flight to safety" asset. Tell me when the next crash will occur and I'll stock up on them.

P.S. -- I don't endorse the newsletter. It just had the charts I wanted to post and I was too lazy to find them elsewhere.

[RetireAge50]

Just a note to previous comments. A 10.5% loss each year for 3 years is is a 28.31% total loss (not 31.5%)

[Lsbcal]

Well, there are bad markets and then there are really bad markets.

[ERsoonihope]

Blah blah blah....it's still 28.3 - quit wasting your time reading all this.

[ESRwannabe]

With an 80/20 split I wouldn't be shocked to see your principal decline by 50% at some point.

I have an 80/20 split as well although not really on purpose. Its just happens to balance out that way for now.

I keep one year of living expenses in cash and I fill my 401k up with a bond fund. Roth IRA has REITs. Taxable account has stocks.