Bottom result pinned after 19 years

[puffin88]

My goal was to use Firecalc to find out the longest it ever took the market to recover from a downturn. So I did the following:
1. used all the default settings on all the FireCalc tabs. The only fields I touched were the three on the main page (namely, spending, portfolio, and years)
2. Entered a portfolio of $1M, spending of $0, and time of 1 year
3. Ran Firecalc and looked at the results to see if the worst result was under $1M (which I interpreted as "the market has not recovered after 1 year") or over $1M (which I would have interpreted as "it never took the market longer than 1 years to recover)
4. Tried again with 2 years, 3 years, etc.


I was not surprised to see that I got all the way up to 19 years without ever seeing that worst result was over $1M. I interpreted that to mean that there was at least one 19-year period where the market had not recovered a previous high it had once recorded, which is easy to believe.


The strange thing is that when I tried 20 years, the worst result was exactly $1M. Same thing when I tried 21 years, 22 years, etc.

I can't think of a sensible way to interpret that result. Is there one, or is this a Firecalc bug?

 

[ERD50]

... The strange thing is that when I tried 20 years, the worst result was exactly $1M. Same thing when I tried 21 years, 22 years, etc.

I can't think of a sensible way to interpret that result. Is there one, or is this a Firecalc bug?

That sounds familiar, pretty sure it's a bug. IIRC, in some cases it just reports the original number, rather than the final lower number (and IIRC, it was reported years ago). Geez, I forget the details now. I may go back and try to emulate it, but in the meantime, if you can post a link with sample data, that would help - then I can see what you see.

On the results page, click: Link to this set of data (Right-click and either "Copy Shortcut"
to paste into an email, for example, or "Add to Favorites")

-ERD50

 

[ERD50]

OK, I was able to recreate it, but I'm not sure it's related to what you are seeing:

edit/add: I re-read your post, yes this is related to what you observe - just look at the graph itself to verify

https://firecalc.com/index.php?wdam...y=10&goal=95&portfloor=0&FIRECalcVersion=3.0&


I entered $1M portfolio, zero spend, and 30 years. The graph clearly shows a minimum ending value of around $2M (inflation adjusted). But the report says:

The lowest and highest portfolio balance at the end of your retirement was $1,000,000 to $9,522,460

So the bug is, if the ending values are all higher than the starting value, it reports the starting value as the low, rather than the lowest ending value.

-ERD50

 

[street]

That is interesting.

 

[USGrant1962]

Yup. A longstanding bug in FIRECalc. Kind of basic and I’m bewildered as to why it wasn’t fixed when FIRECalc was still actively maintained.

 

[ERD50]

Back to the OP's observation, separate from the bug...

We often hear that the market bear markets are relatively short (I forget the most common numbers offered), but 19 years is pretty long! Note, that is inflation adjusted, but that is the best way to view it anyhow, IMO. And this would be market value (including divs), not just the NAV of the DOW or something a 'journalist' might use, again, a better view.

But even this extreme doesn't justify the sky-screamers: "You will be selling stocks when they are down!". If you consider a conservative WR of ~ 3.5%, and that the portfolio probably kicks off 2~2.5% in divs, you only need to pull 1~1.5% from principal.

So a 70/30 portfolio would (and this is an over-simplification, but makes the approximate point) draw from bonds for 20 years @ 1.5% inflation adjusted of portfolio, and 1.5%*20 years = 30%. So your bonds cover you.

That's oversimplified, as inflation grows, and the portfolio dwindles the picture also changes. But even in this most extreme case, rebalancing would be prioritizing bonds sales over stock sales. Though if you are strictly maintaining 70/30, there would be some stock sales to replenish the bonds. It would take a far more detailed analysis to get a better picture, but the 'selling stocks in a downturn' fear is over stated, IMO.

-ERD50

 

[puffin88]

OK, I was able to recreate it, but I'm not sure it's related to what you are seeing:

edit/add: I re-read your post, yes this is related to what you observe - just look at the graph itself to verify




I entered $1M portfolio, zero spend, and 30 years. The graph clearly shows a minimum ending value of around $2M (inflation adjusted). But the report says:

So the bug is, if the ending values are all higher than the starting value, it reports the starting value as the low, rather than the lowest ending value.

-ERD50

Thanks for looking into it! And I should have mentioned the graph. I had noticed it too, but forgot all about it when I wrote my post.

 

[puffin88]

OK, I was able to recreate it, but I'm not sure it's related to what you are seeing:

edit/add: I re-read your post, yes this is related to what you observe - just look at the graph itself to verify

Back to the OP's observation, separate from the bug...

We often hear that the market bear markets are relatively short (I forget the most common numbers offered), but 19 years is pretty long! Note, that is inflation adjusted, but that is the best way to view it anyhow, IMO. And this would be market value (including divs), not just the NAV of the DOW or something a 'journalist' might use, again, a better view.

But even this extreme doesn't justify the sky-screamers: "You will be selling stocks when they are down!". If you consider a conservative WR of ~ 3.5%, and that the portfolio probably kicks off 2~2.5% in divs, you only need to pull 1~1.5% from principal.

So a 70/30 portfolio would (and this is an over-simplification, but makes the approximate point) draw from bonds for 20 years @ 1.5% inflation adjusted of portfolio, and 1.5%*20 years = 30%. So your bonds cover you.

That's oversimplified, as inflation grows, and the portfolio dwindles the picture also changes. But even in this most extreme case, rebalancing would be prioritizing bonds sales over stock sales. Though if you are strictly maintaining 70/30, there would be some stock sales to replenish the bonds. It would take a far more detailed analysis to get a better picture, but the 'selling stocks in a downturn' fear is over stated, IMO.

-ERD50

Exactly!! I keep stressing to people that you're not going to withdraw all your money at once, so the depth of a downturn isn't as important as its duration (and the shape of the recovery)

 

[ERD50]

Exactly!! I keep stressing to people that you're not going to withdraw all your money at once, so the depth of a downturn isn't as important as its duration (and the shape of the recovery)

Yes, and you might be surprised how many people who have been posting here for quite a while will repeat that "but then you have to sell stocks when they're down!" mantra.

And I was surprised at that 19~20 year recovery, so that was interesting to see from your post. Even more surprising to me, is that it wasn't the 1966 starting year (using a different tool), which typically shows up as the worst starting date, largely due to 1980's inflation, which I think followed a rather flat market (I'd need to check that, it's off the top of my head).

It would be interesting if these tools would show the annual withdrawal based on rebalancing (if needed, or just pull proportionately if not), and then do any additional buy/sell to rebalance. Especially if there were bands, like 5% (portfolio survival is pretty insensitive to asset allocation, so fine tuning isn't needed). Then we could actually see when stocks are sold, and if a significant amount were sold at lows.

But w/o that, we still have the basic success/failure data, which tells us if it works, regardless of any socks being sold at lows or not.


-ERD50

 

[ERD50]

... Exactly!! I keep stressing to people that you're not going to withdraw all your money at once, so the depth of a downturn isn't as important as its duration (and the shape of the recovery)

Another thought on that: People will talk about how the market can drop 50% in a year (or there-bouts). True, but unless you went from zero savings to a full retirement stash in no time (won the lottery?), you accumulated most of that over time and at much lower cost. You don't (well, we haven't) get a 50% drop after the market has already dropped to 15 year lows.

The other thing people miss on stocks vs 'safe' investments, is that those safe investments may not drop 50% in a year, but they never got to the level of stocks to drop from! IOW, in the long run, you are way ahead with stocks, even after a big drop.

-ERD50

 

[street]

Another thought on that: People will talk about how the market can drop 50% in a year (or there-bouts). True, but unless you went from zero savings to a full retirement stash in no time (won the lottery?), you accumulated most of that over time and at much lower cost. You don't (well, we haven't) get a 50% drop after the market has already dropped to 15 year lows.

The other thing people miss on stocks vs 'safe' investments, is that those safe investments may not drop 50% in a year, but they never got to the level of stocks to drop from! IOW, in the long run, you are way ahead with stocks, even after a big drop.

-ERD50

Agree. A 50% drop in safe investment vs stock investments isn't comparing apples to apples.